Final answer:
The clause in the Standard Fire Policy that limits the insurer's liability to a portion of the loss and relates the coverage amount to the total insurance is known as pro-rata liability. This clause involves the concept of coinsurance, where the insurance holder and company share the cost of a loss.
Step-by-step explanation:
The clause in the Standard Fire Policy (SFP) that limits the liability of the insurer to a portion of the loss, stating that the insured amount shall bear to the total insurance covering the property against the peril involved is known as pro-rata liability. This is a common clause in many insurance policies and is closely related to the concept of coinsurance, which is when an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost. Coinsurance is an approach to share the risk between the insurer and the insured and is intended to encourage policyholders to insure their property to value.
Pro-rata liability works in conjunction with coinsurance to ensure that in the event of a loss, the insurance payout is proportional to the amount of coverage purchased relative to the total value of the property. If a policyholder has purchased less than the full value of the property, they are considered to be 'co-insuring' the risk and will only receive a proportional payout from the insurer, based on the coverage they have purchased.