When a $24,000 loss occurs with coverage from two insurers using the pro rata method, how much will Company A pay if it has $100,000 in coverage?

When a $24,000 loss occurs with coverage from two insurers using the pro rata method, how much will Company A pay if it has $100,000 in coverage?

• A. $12,000
• B. $16,000
• C. $8,000
• D. $24,000

Answer: (B)

To determine how much Company A will pay under the pro rata method, it's important to understand how this method allocates losses among multiple insurers based on their respective coverage amounts. In this scenario, we have a total loss of $24,000 and two insurers involved. Company A has coverage of $100,000. The pro rata method divides the loss proportionally based on the amount of coverage each insurer provides. If we denote Company A's coverage as $100,000, and assuming there is a second insurer involved with a specific amount of coverage (which must be known to complete the calculation), the formula to calculate the share of the loss is as follows: 1. First, determine the total coverage provided by both insurers combined. Let’s assume Company B provides coverage of $X (not specified but necessary for proportion calculations). 2. The proportion for Company A would be calculated as: Company A’s proportion = Company A’s Coverage / Total Coverage This is essentially $100,000 / ($100,000 + $X). 3. The amount that Company A will pay is then calculated by multiplying its proportion by the total loss ($24,000): Amount paid by Company A = ($100,000 / ($100

To determine how much Company A will pay under the pro rata method, it's important to understand how this method allocates losses among multiple insurers based on their respective coverage amounts.

In this scenario, we have a total loss of $24,000 and two insurers involved. Company A has coverage of $100,000. The pro rata method divides the loss proportionally based on the amount of coverage each insurer provides.

If we denote Company A's coverage as $100,000, and assuming there is a second insurer involved with a specific amount of coverage (which must be known to complete the calculation), the formula to calculate the share of the loss is as follows:

1. First, determine the total coverage provided by both insurers combined. Let’s assume Company B provides coverage of $X (not specified but necessary for proportion calculations).

2. The proportion for Company A would be calculated as:

Company A’s proportion = Company A’s Coverage / Total Coverage

This is essentially $100,000 / ($100,000 + $X).

3. The amount that Company A will pay is then calculated by multiplying its proportion by the total loss ($24,000):

Amount paid by Company A = ($100,000 / ($100