How to divide insurance claims between multiple insurers?

Question

A shipowner insures a ship with company T on July 1 for $100,000. Later, On July 5, fearing insufficient coverage, the shipowner takes out another $50,000 policy with Company U. (a) In the event of a $30,000 loss to the hull, how would the two companies divide the claim? (b)What would the settlement be if the loss were $60,000? Explain

Answer 1

It depends on the language in the policies.

However, most policies say that each insurer will pay their pro-rata share.

Using your numbers: total coverage available : $150,000.

Company T coverage makes up 66.67% of total coverage.
Company U coverage makes up 33.33% of total coverage.

As such: company T pays 66.67% of loss and company U pays 33.33% of the loss.

Answer 2

You need to look at the policies. If both policies say they are primary you are going to have a hard time getting to split it. In some states taking out 2 primary policies is against the law.

Answer 3

The policies will have provisions in them for how to pay out in case of multiple coverage. Typical methods of payout would be primary/excess, pro-rata based on limits, or equal sharing of payout until one policy hits the limits.

So you'll have to read the policy forms to find out which method will apply.