Pro Rata Liability Clause

What Does Pro Rata Liability Clause Mean?

A pro rata liability clause is a provision in an insurance policy that requires the insurer to cover only a percentage of a loss if the insured holds additional policies from other companies covering the same risk. Once the insurer covers its portion, the other companies are responsible for paying the remainder.

Insuranceopedia Explains Pro Rata Liability Clause

This clause is designed to prevent an individual from profiting from a loss, ensuring they are only compensated for the actual loss. When a loss occurs and multiple policies cover it, the companies issuing the policies share the responsibility equitably, rather than each paying the full amount promised individually.

For example, if property damage costs $10,000 to cover, the insured would receive $5,000 from each of the two companies providing coverage for the same risk, rather than $10,000 from each company.