1.Fritz has an open fire insurance policy on his home for a maximum liability of
ID: 2710301 • Letter: 1
Question
1.Fritz has an open fire insurance policy on his home for a maximum liability of $60,000. The policy has a number of standard clauses, including the right of the insurer to restore or rebuild the property in lieu of a monetary payment, and it has a standard coinsurance clause. A fire in Fritz’s house destroys a utility room and part of the kitchen. The fire was caused by the overheating of an electric water heater. The total damage to the property is $10,000.00. The property at the time of loss is valued at $100,000.00. Fritz files a proof-of-loss claim for $10,000.00. What is the insurer’s liability in this situation? Explain fully
Explanation / Answer
The maximum amount of liability on the insurance company could be only 60,000. Here the amount of loss is 10,000 and the value of property is 100,000. That means, proportion of insurance:
Proportion of insurance = Insurance amount/ value of property
= 60,000/ 100,000
= 60%
Therefore, he will get only 60% of claim for the amount of loss.
Amount of claim settled = 10,000 x60%
= 6000
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