What coverage type ensures proportional share liability among insurers when multiple coverages exist?

The pro-rata liability provision is designed to ensure that when an insured holds multiple insurance policies covering the same risk, each insurer only pays a share of a claim proportional to the limits of their coverage relative to the total coverage. This means that rather than one insurer covering the entire amount or all insurers contributing equally, each insurer will pay out based on the ratio of their respective coverage limits.

For example, if an insured has two policies, one for $100,000 and the other for $200,000, and suffers a loss of $300,000, the pro-rata liability provision allows the insurers to divide the liability based on their coverage limits. This method prevents one insurer from bearing an unfair burden of loss while another insurer potentially contributes nothing despite a shared risk.

This approach promotes fairness and encourages insurers to provide coverage without the fear that they will be disproportionately liable for claims. In situations where multiple policies are involved, the pro-rata liability provision plays a critical role in distributing financial responsibility equitably among insurers.