Two Policies, One Fire: Rental Exposure, Pro Rata Apportionment, and the Tenant's Liability
A Shreveport duplex owned by an individual landlord suffers a $60,000 fire started by a tenant's unattended cooking. Two policies insure the building: a homeowners policy (Coverage A $200,000, $2,000 deductible) bought when the owner lived in one unit, and a dwelling fire policy ($150,000, $2,000 deductible) bought after he moved out. Both insure the same interest, both contain pro rata other-insurance clauses, and neither was cancelled. The tenant carries no renter's insurance. The owner wants $60,000 from each insurer and asks whether he should sue the tenant to recover his deductibles.
1. What coverage question must be resolved before any apportionment?
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Decide first whether the homeowners policy responds at all. It was written for an owner-occupant; the owner moved out and rents both units. Standard homeowners forms exclude loss arising out of a 'business,' including renting property to others, with only narrow exceptions for a single roomer or boarder. If the duplex is now a rental business, the homeowners policy may owe nothing, there is no other-insurance question, and the dwelling fire policy pays alone up to its $150,000 limit less the $2,000 deductible.
Also check the dwelling fire policy's occupancy and vacancy conditions, whether the rental was disclosed, and whether either policy has an excess rather than pro rata clause. Send a reservation-of-rights letter on the homeowners policy and do not apportion until the coverage question is settled in writing.
2. Assuming both policies validly cover the same interest and both have pro rata clauses, compute the payment and explain the deductibles.
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Share the loss in the proportion each limit bears to the total limits.
- Total limits: $200,000 + $150,000 = $350,000.
- Homeowners: 200/350 = 57.14% x $60,000 = $34,286, less $2,000 deductible = $32,286.
- Dwelling fire: 150/350 = 42.86% x $60,000 = $25,714, less $2,000 deductible = $23,714.
- Total to the insured: $56,000.
The insured cannot collect $60,000 from each carrier; indemnity caps recovery at the actual loss. Each deductible applies to that policy's own share because each policy is a separate contract. If one policy instead contains an excess other-insurance clause, it pays only after the other is exhausted, which changes the arithmetic. Get both carriers' agreement in writing so the insured does not receive conflicting drafts.
3. The insured asks about suing the tenant for his deductibles. What do you advise and what do you check?
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Subrogation is limited to what the insurer actually paid. The insured keeps his own claim for the $4,000 of deductibles and any uninsured loss, so no release may be given to the tenant without protecting that claim.
- Check the lease. Many leases contain a mutual waiver of subrogation, which would bar both the insurer's and the insured's claim against the tenant.
- Confirm the tenant is not an insured under either policy (he is not, having no renter's policy) and whether the loss involved an intentional act.
- Weigh collectability: an uninsured tenant is often judgment-proof, so the cost of suit may exceed recovery.
- Explain the options and the waiver risk to the insured in writing.
Any recovery is shared: the insurer first to the extent of its payment, the insured for the deductible, absent a contrary policy clause or agreement.