Question

1. How Much of Fire Loss Will Be Covered? Toula and Ian Miller of Gainesville, Florida, recently suffered a fire at their home. The fire, which began in a crawl space at the back of the house, caused $50,000 of dam- age to the dwelling itself. Their ued at $20,000, was totally destroyed but did not contain a car at the time of the fire. Replacement of the Millers' personal property damaged in the home and garage amounted to $23,000. In addition, $350 in cash and a stamp collection valued at $3,215 were de- stroyed. While the damage was being repaired, the Mill- ers stayed in a motel for one week and spent $1,350 on food and lodging. The house had a value of $195,000 and was insured for $150,000 under an HO-3 policy with a $250 deductible. Use Table 10-1 on page 309 DO IT IN CLASS Pages 309 and val- garage, 311 2. to answer the following questions. (Hint: You must first determine whether the Millers have adequate dwelling replacement coverage and, if not, what percentage of the necessary 80 percent coverage they do have. The resulting answer will determine the percentage of the loss to the dwelling covered, and consequently the amount to be reimbursed by the insurance company.) 3. (a) Assuming that the deductible was applied to the dam- age to the dwelling, calculate the amount covered by insurance and the amount that the Millers must pay for each loss listed: the dwelling, the garage, the cash and stamp collection, and the extra living expenses.

Answer 1

Total Losses incurred by Millers is as below:

Particulars	$
Dwelling damage	50,000
Garage	20,000
Replacement of personal property	23,000
Cash damaged	350
Stamp collection	3,215
Hotel stay & Food	1,350
Total Loss	97,915

Other details:

Particulars	$
Value of house	1,95,000
Insured for	1,50,000
Policy type	HO3 policy
deductible	250

Answer to question (a)

First determiner, whether dwellers have taken insurance of 80% value of the replacement cost

80% of value of house i.e. minimum coverage:

$ 195,000*80%=$ 156,000

Insured amount is $ 150,000 which is less than $156,000 (i.e. 80% of value of house)

Hence, the insurance company will only pay for proportionate amount represented by proportion of insured amount to the minimum coverage – calculated as below:

150,000/156000 = 96.15%

Amount of insurance covered and to be paid by Millers are as follows:

Insurance claim Dwelling and Garage:

House and any other attached building i.e. garage in this case will be covered by insurance basis amount based on replacement cost. Further deductibles of $ 250 shall be reduced from dwelling claim. On the balance amount 96.15% shall be insurance covered

Particulars	$	Sub Total	Deductible	Balance	Insurance covered @96.15% (paid by insurance company)	Balance to be paid by Millers
Dwelling damage	50,000	70,000	250	69,750	67,065	2,935
Garage	20,000

Cash damage and stamp collection:

For cash and stamp collection damages, maximum amount of insurance shall be allowed basis per occurrence as below:

Particulars	$	Maximum allowed per- occurrence basis	Insurance covered @96.15%	Balance to be paid by Millers
Cash damaged	350	200	192	158
Stamp collection	3,215	1,000	962	2,254

Stay and food expenses

Particulars	$	Insurance covered @96.15%	Balance to be paid by Millers
Hotel stay & Food	1,350	1,298	52

Answer to question (b)

Personal property loss shall be calculated as below:

Particulars	$	Insurance covered @96.15%	Balance to be paid by Millers
Replacement of personal property	23,000	22,115	886