My neighbor Joe got drunk one day cooking hamburgers on his grill outside. He go
ID: 2701853 • Letter: M
Question
My neighbor Joe got drunk one day cooking hamburgers on his grill outside. He got so carried away that he spilled lighter fluid on the grass and dropped his cigar. A fire started which spread to my house causing me $700,000 of damage. I have insurance on my house for $500,000 and Joe has liability coverage for $400,000.
A - How much can I collect from my insurer? (1 point)
B - Explain the principle of subrogation and show how I can be fully compensated for my loss?
C - After my insurer pays me the amount calculated in part A, my insurer collects $350,000 from Joe%u2019s insurer, how much do I receive (if any) from this?
Explanation / Answer
A. NO way to know. You're clearly underinsured, so coinsurance penalties will apply. You could have replacement cost endorsements, or limited replacement cost endorsements, which could affect the policy limit. We also don't know if your loss is a total loss, or a partial loss - very crucial information.
B. You'll have to look it up. It will be presented on the exam several times, in several scenarios. You'll have to know it cold, so go read that section , ten or twenty times. Keep in mind, you probably aren't ENTITLED to be fully compensated.
C. It depends on what your coinsurance penalty was, and how much your insurer ended up paying you.
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