Pro Rata Liability Clause
What Does Pro Rata Liability Clause Mean?
A pro rata liability clause is a stipulation in an insurance policy that obliges the insurance company to cover only a percentage of a loss if the insured has other policies from other companies covering the same risk. After the insurer covers that percentage, the other companies pay for the rest.
Insuranceopedia Explains Pro Rata Liability Clause
This clause is meant to prevent a person from profiting from a loss instead of being merely covered for it. When a loss happens and the person has more than one policy covering that loss, companies that issued the policies share the coverage equitably and not one of them pay the insured the exact amount individually promised.
For instance, damage to property that costs $10,000 to cover means that the insured will get only $5,000 each from two companies that issued coverage for the same risk, rather than $10,000 from each company.