Tom has a bookstore near a river, which is insured for €120,000 under a commercial property insurance policy.
The policy contains a 75 percent coinsurance clause. Tom's bookstore suffered a loss worth €80,000 due to floods. The replacement cost of the warehouse at the time of loss is €200,000.
a. What is the insurer's liability, if any, for this loss? Show your calculations.
b. Assume that Tom carried €250,000 of property insurance on the bookstore at the time of loss. If the amount of loss is €50,000, how much will he collect?