The Lincoln Saltdogs is a professional minor league baseball team in the America

Question

The Lincoln Saltdogs is a professional minor league baseball team in the American Association league. The clubhouse is insured for $300,000 under a commercial property insurance policy with an 80 percent coinsurance clause. The current replacement cost of the clubhouse is $500,000. After a playoff game for the league championship, a whirlpool tub for injured players shorted out, and a fire ensued. The clubhouse sustained a $40,000 fire loss. Ignoring any deductible, how much will the team's insurer pay for the loss?

Explanation / Answer

Coinsurance is a penalty imposed on the insured by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported.

insurance has been done for $300,000 with 80% insurance clause.

cost of club house =$500,000

Fire loss = $40,000

but is insured for only $300,000. Since its insured value is less than 80% of its actual value=$400,000, when it suffers a loss, the insurance payout.

(300000/(0.8 * 500000) ) * 40000 = $30,000

Hence $ 30,000 will be paid for the loss by insure

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