The Pro-Rata liability provision is designed to manage what aspect of insurance policies?

The Pro-Rata liability provision is an important concept in insurance that comes into play when multiple insurance policies cover the same risk. It addresses how claims will be paid when more than one policy is involved. Essentially, this provision establishes that each insurer will pay a portion of the claim that is proportional to the limit of coverage it provides in relation to the total coverage available from all policies on that risk.

For example, if two policies are insuring the same asset, and one has a coverage limit of $50,000 while the other has a limit of $100,000, in the event of a claim, the insurer with the lower limit will pay one-third of the claim, while the insurer with the higher limit will cover two-thirds. This is designed to ensure fairness and avoid a scenario where one insurer bears an unfair burden due to multiple policies covering the same loss.

In summary, the Pro-Rata liability provision effectively manages the limits of liability for multiple policies on the same risk, ensuring that insurers share the financial responsibility according to their respective coverage limits.