The Fortress Insurance Company issued an "all property" commercial property insurance policy to XYZ Clothiers, Inc. with an 80% co-insurance clause.

All Property consists of Building, Stock and Equipment.

Billy, the owner of XYZ Clothiers decided to take out $200,000 of all property coverage, which he knows represents only about 40% of the actual cash value of his property and he is vastly underinsured.

The building represented 60% of the coverage, the stock represented 25% of the coverage, and the equipment represented 15% of the coverage.

Billy had a fire in clothing store today and suffered a $24,000 loss to their office furniture and portable shelving units. Billy filed a claim for this loss.

Explain how the insurance company would handle this claim.

a) What type of property coverage will this claim be for?      

b) What limit of insurance did, in fact, Billy purchase for this type of property coverage?  

c) How much minimum coverage is required for this type of property under the co-insurance clause?  

d) What is the result of the co-insurance calculation? 

e) How much will Fortress pay to Billy for this claim and why?