Casualty Insurance Recoveries with Coinsurance Clauses: A General Approach.

The article presents a general approach on casualty insurance recoveries with coinsurance clauses. Traditionally intermediate accounting textbooks contain illustrations and explanations of the effects of coinsurance clauses on casualty insurance recoveries. The purpose of the note is to present an approach, which clarifies the general nature of the recovery determination process for losses involving coinsurance requirements. A simple logical format is provided, which provides a framework for easily identifying effects of coinsurance clauses on loss recoveries. A case is considered that involves a single asset that is covered by casualty insurance carried under different policies. Approaching the coinsurance settlement in a general manner has allowed the development of a simple logic pattern that illustrates succinctly the important conditions influencing recovery amounts from casualty losses. The approach allows for an examination of effects of changing conditions, that is market value of the property, on the ability to recover for losses. For example, the recovery in cases, in which the coinsurance requirement is not met, is never a larger amount than when the requirement is met.