How is liability determined under a Pro Rata Liability Clause when multiple insurance policies are involved?

The Pro Rata Liability Clause is designed to determine how multiple insurance policies respond when there is a loss covered by more than one policy. Under this clause, each insurer's liability is based on the ratio of its policy limit to the total limits of all policies involved.

When multiple policies cover the same risk, the insurer pays a portion of the loss relative to the limit of its policy. For example, if one policy has a limit of $100,000 and another has a limit of $200,000, the total limit for both policies is $300,000. If a loss of $30,000 occurs, the first insurer would pay one-third of that loss (as it has one-third of the total coverage limits), while the second insurer would pay two-thirds.

This approach ensures that each insurer contributes to the loss proportionately based on the coverage they have provided, thus promoting fairness among the insurers and their insured parties.