Under pro rata coordination, if Policy A provides $100,000 and Policy B provides $50,000 of primary coverage for a $75,000 loss, how much does each pay?

Under pro rata coordination, if Policy A provides $100,000 and Policy B provides $50,000 of primary coverage for a $75,000 loss, how much does each pay?

• A. Policy A $50,000; Policy B $25,000
• B. Policy A $75,000; Policy B $0
• C. Policy A $25,000; Policy B $50,000
• D. Policy A $37,500; Policy B $37,500

Answer: (A)

Under pro rata coordination, each primary policy pays a share proportional to its limit relative to the total primary coverage. Here, total primary coverage is 100,000 + 50,000 = 150,000. The loss is 75,000. Policy A’s portion = 100,000 / 150,000 = 2/3 → 2/3 of 75,000 = 50,000. Policy B’s portion = 50,000 / 150,000 = 1/3 → 1/3 of 75,000 = 25,000. So, Policy A pays 50,000 and Policy B pays 25,000. The other allocations would ignore proportional sharing or misallocate based on an incorrect assumption.

Under pro rata coordination, each primary policy pays a share proportional to its limit relative to the total primary coverage. Here, total primary coverage is 100,000 + 50,000 = 150,000. The loss is 75,000.

Policy A’s portion = 100,000 / 150,000 = 2/3 → 2/3 of 75,000 = 50,000.

Policy B’s portion = 50,000 / 150,000 = 1/3 → 1/3 of 75,000 = 25,000.

So, Policy A pays 50,000 and Policy B pays 25,000. The other allocations would ignore proportional sharing or misallocate based on an incorrect assumption.