Our question concerns the application of a coinsurance penalty where two buildings are insured under blanket coverage.

Our policy provides a blanket limit for two buildings at different sites.  In the event a loss was to occur to one of the buildings and it is determined that the blanket insurance limits for both buildings is inadequate however more than sufficient if applied to the damaged building, would the co-insurance penalty still apply?

California Subscriber

According to the coinsurance section in the ISO CP 00 10, Building and Personal Property Coverage Form, the limit would apply to the total of all property, so the coinsurance penalty would still apply. Here is the provision and an example from the policy:

b. If one Limit of Insurance applies to two or more separate items, this condition will apply to the total of all property to which the limit applies.

Example 3

When: The value of the property is:

Building at Location 1: $75,000

Building at Location 2: $100,000

Personal Property at Location 2: $75,000    

Total Limit: $250,000

The Coinsurance percentage is: 90%

The Limit of Insurance for Buildings and Personal Property at Locations 1 and 2 is: $180,000

The Deductible is: $ 1,000

The amount of loss is:

Building at Location 2: $30,000

Personal Property at Location 2: $20,000

Total Loss is:  $50,000

Step (1): $250,000 x 90% = $225,000 (the minimum amount of insurance to meet the Coinsurance requirements and to avoid the penalty shown below)

Step (2): $180,000 ÷ $225,000 = .80

Step (3): $50,000 x .80 = $40,000

Step (4): $40,000 – $1,000 = $39,000

We will pay no more than $39,000. The remaining $11,000 is not covered.