Required Terms to Enforce the Pro Rata Rule in Insurance

The Pro Rate rule is enforced when the insurance amount is less than value of the insured upon thing. This means that it works in case of low insurance, but in case of the over-insurance, where the insurance amount is more than value of the insured upon thing, the principle of compensation is enforced. For enforcing the pro rata rule, three conditions must be available:
1- There should be an insured upon value, estimated or can be estimated.
2- The insurance should be low, means that the insurance amount is less than the insured upon value, at time of risk occurrence.
3- The insured upon risk should occur partially not totally.
The First Condition- An insured upon value, estimated or can be estimated:
Based on this, insurance on persons is excluded from enforcing the pro rata rule as this insurance has no insured upon value because life or safety of the person is not an estimated value or can be estimated, and the insurance amount only is due without increase or decrease at time of insured upon risk occurrence. Insurance against damages is only included in the pro rata rule enforcement.
The best field for the pro rata rule is insurance upon things, in which insurance is usually upon specific thing estimated or can be estimated, such as insurance on fire; the person can insure upon his house and the insured upon value is cost of rebuilding, in addition to the house luggage and the missing benefit at period of rebuilding, and all these values can be estimated.
Another example is insurance against damage of plantation or death of livestock. In these types of insurance, the pro rata rule can be enforced as the plantation and the livestock can be estimated, and it is rare to find insurance upon things void of an estimated or can be estimated insured value, and in case of this the pro rata rule does not work.
In insurance against liability of specific risk there is an estimated or can be estimated value, so the pro rata rule is enforced. Whoever insures on his liability towards things deposited at him, he insures on a value estimated or can be estimated, which is value of these things. The tenant who insures upon his liability against fire, he insures on a value estimated or can be estimated which is value of the rented premises. If there are many tenants in the rented premises, and one of these tenants insures on his liability against fire, for his rented part there is a value estimated or can be estimated, which is value of this place, and so the pro rata rule can be enforced. For risk of other parts that he may be responsible for, his insurance is not on value estimated or can be estimated, which is value of these parts, but his insurance is on a specific amount, and accordingly the pro rata rule does not work. For insurance on a non specific risk, such as responsibility for car accident and responsibility for fire of neighbors, this is void of an estimated or can be estimated value, and it includes only the insurance amount, ant it might even not include this amount, and accordingly the pro rata rule does not work.
The Second Condition- Low Insurance:
In addition to the insured upon estimated value, there is the insurance amount. For enforcing the pro rata rule, the insurance should be low, means that the insurance amount should be less than the insured upon value at time of risk. This might occur on purpose and might occur unintentionally. The insured might intend to lower the insurance amount so that the installment may not be high. He might not intend that and by estimating value of the insured upon thing wrongly, he lowers its value, and on this basis he estimates the insurance amount. He might not lower value of the insured upon thing, but this value increases by itself or because of currency rate change during the period before risk occurrence, and the insurance amount becomes less than value after it was equal or more.
The Third Condition- Risk Occurrence Partially
If risk occurs completely, the Insured obtains all the insurance amount, and the pro rata rule becomes unclear, or this rule hides behind another rule that the Insured receives the least from value of damage and the insurance amount, and he receives the least which is the insurance amount. However, the pro rata rule works in this assumption, but it is hidden. The Insured receives the whole insurance amount because the whole thing is damaged. He is considered to have received a percent of the insurance amount equal to percent of the damaged thing, and as the whole thing is damaged; he receives the whole insurance amount which is less than value of the thing, and there is a part uninsured because the insurance installments paid by the Insured do not cover the whole risk. If the risk occurs partially, the pro rata rule work becomes clear, as the Insured receives only a percent of the damage value although he could receive all the damage value without exceeding the insurance amount.
Therefore, the third condition is not a condition for the pro rata rule enforcement as it works even if the risk occurs totally, but it is a condition for the pro rata rule appearance while it works clearly.

Attorney / Mohamed Al Marzooqi
Mohamed Al Marzooqi Advocates & Consultancy
Lawyer in Abu Dhabi, Dubai – UAE

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