What does the Other Insurance Clause require from multiple insurers in case of a loss?

The Other Insurance Clause is an important aspect of insurance policies that addresses the situation when multiple insurance policies cover the same loss. The requirement for insurers to pay in proportion to their coverage amounts is fundamentally about fair distribution of the financial responsibility for a claim among the insurers.

When there are multiple insurance policies covering the same risk, the clause ensures that the payment for a covered loss is proportional to the coverage limits of each insurer. This prevents an insured from profiting from a loss by collecting more than the actual loss amount and ensures that the financial burden is shared according to the extent of coverage each policy provides.

For example, if two policies cover a loss, and one has a limit of $100,000 while the other has a limit of $200,000, the payout from each insurer would be based on these amounts relative to the total coverage. If the total loss is $300,000, the first insurer would be responsible for one-third of the payout, while the second insurer would cover two-thirds. This proportional approach maintains fairness and equity among the insurers while adequately compensating the insured for their loss.

This mechanism contrasts with other options that suggest equal payment, allowing just one insurer to cover the entire loss, or designating a single insurer to