It's been a while on this coverage so I want to be sure that I'm properly applying the valuation on the garage form when the limit is on a non-reporting basis: Here is the language:
SECTION IV – PHYSICAL DAMAGE COVERAGE
C. Limits Of Insurance
5. The following provisions also apply:
c. Non-reporting Premium Basis If, when "loss" occurs, the total value of your covered "autos" exceeds the Limit of Insurance shown in the Declarations, we will pay only a percentage of what we would otherwise be obligated to pay. We will determine this percentage by dividing the Limit of Insurance by the total actual value at the "loss" location at the time the "loss" occurred.
Let's say the insured purchases a limit of $250,000, but their actual losses (everything is a total loss) are $400,000. Am I correct that the calculation would be:
250,000/400,000=.625
I would then multiply .625 to my total limit and the policy would only pay $156,250? Or does the .625 apply to the total loss of $400,000?
You have calculated the loss accurately by applying the factor to the total insured limit. What the policy language is saying in effect is that there is a penalty to be applied for not reporting the actual values upon which the premium was based. Therefore, if the values at loss were higher than those reported, then the insured will not receive the benefit of the full insurance coverage they purchased, much like a coinsurance penalty.
If the .625 were applied to the total loss limit of $400,000, then the insured would receive the full amount of $250,000. Since the policy says they will receive only a percentage of what the policy would normally pay, then it only makes sense that the .625 be applied to the total insured limit.