Question

PLEASE HELP!! 50 POINTS!!

Cajun Catering Company experiences an insured loss of $850,000 while having insurance coverage beyond its coinsurance requirement. The insurance is divided among Company A with $500,000 coverage and Company B with $750,000 coverage.
Part A: Determine the fractional coverage from Company A. Show your work.

Part B: Determine the fractional coverage from Company B. Show your work.

Part C: Determine the amount paid by each insurance company. Show your work.

Answer 1

Part A: To determine the fractional coverage from Company A, we need to divide the coverage from Company A by the total insurance coverage. The total insurance coverage is the sum of the coverage from Company A and Company B:

Total insurance coverage = $500,000 + $750,000 = $1,250,000

Fractional coverage from Company A = Coverage from Company A / Total insurance coverage

Fractional coverage from Company A = $500,000 / $1,250,000

Fractional coverage from Company A = 0.4 or 40%

Therefore, Company A has 40% fractional coverage.

Part B: To determine the fractional coverage from Company B, we follow the same process as in Part A:

Fractional coverage from Company B = Coverage from Company B / Total insurance coverage

Fractional coverage from Company B = $750,000 / $1,250,000

Fractional coverage from Company B = 0.6 or 60%

Therefore, Company B has 60% fractional coverage.

Part C: To determine the amount paid by each insurance company, we need to calculate the amount of the loss that each company is responsible for. This can be done using the fractional coverage from each company:

Amount paid by Company A = Fractional coverage from Company A x Total loss

Amount paid by Company A = 0.4 x $850,000

Amount paid by Company A = $340,000

Amount paid by Company B = Fractional coverage from Company B x Total loss

Amount paid by Company B = 0.6 x $850,000

Amount paid by Company B = $510,000

Therefore, Company A pays $340,000 and Company B pays $510,000 towards the insured loss of $850,000.