Question

Kevin has three liability policies which provide for contribution by equal shares if other insurance applies to a loss. How much will each policy pay for a $3,000,000 liability judgment if policy A provides $500,000 of coverage, policy B provides $1,000,000 of coverage, and policy C provides $3,000,000 of coverage?

a) $500,000 each
b) $1,000,000 each
c) $1,500,000 each
d) $3,000,000 each

Answer 1

Each of the three policies will pay $1,000,000 toward the $3,000,000 liability judgment since they agree to contribute by equal shares.

Step-by-step explanation:

When Kevin faces a $3,000,000 liability judgment with three liability policies that provide for contribution by equal shares, the payout from each policy depends on the terms of these policies. Given that all policies agree to pay by equal shares and not by the extent of their coverage, they will split the liability equally, irrespective of their individual coverage limits. Therefore, each policy would contribute one-third of the total amount.

To calculate: the total judgment amount is $3,000,000, which is to be divided by three policies, hence each policy pays $1,000,000. This means the answer is

b) $1,000,000 each.