Stephanie owns a small warehouse that is insured for $200,000 under a commercial property insurance policy. The policy contains an 80 percent coinsurance clause. The warehouse sustained a $50,000 loss because of a fire in a storage area. The replacement cost of the warehouse at the time of loss is $500,000.
a. What is the insurer's liability, if any, for this loss? Show your calculations.
b. Assume that Stephanie carried $500,000 of property insurance on the warehouse at the time of loss.
If the amount of loss is $10,000, how much will she collect?
c. Explain the theory or rationale of coinsurance in a property insurance contract.

  • CreatedJanuary 30, 2015
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