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Legal Definitions - equal-shares clause
Definition of equal-shares clause
An equal-shares clause is a provision found in an insurance policy that specifies how a financial loss will be divided among multiple insurance companies when more than one policy covers the same event or property. It ensures that each insurer pays its fair, predetermined portion of the claim, rather than one insurer bearing the entire cost.
Example 1: Homeowner's Insurance for a Shared Property
Imagine two siblings co-own a vacation home, and each has purchased a separate homeowner's insurance policy from different companies to cover the property. If a major storm causes significant damage to the roof and structure, the equal-shares clause in both policies would come into play. Instead of one insurer paying the entire repair bill, this clause would ensure that both insurance providers contribute their agreed-upon share (e.g., based on their respective policy limits or an equal split) to cover the cost of the storm damage.
Example 2: Business Interruption Coverage
A large manufacturing company has two different business interruption insurance policies from separate carriers to protect against lost income due to unforeseen shutdowns. If a critical piece of machinery breaks down, forcing the plant to halt production for several weeks and resulting in substantial financial losses, the equal-shares clause in these policies would dictate how the two insurers divide the responsibility for compensating the company for its lost profits. Each insurer would pay its proportionate share of the total business interruption claim.
Example 3: Commercial Property Insurance for a Complex Asset
Consider a consortium of investors who collectively own a valuable commercial art collection stored in a specialized facility. To ensure comprehensive protection, they have secured two distinct commercial property insurance policies from different specialty insurers, both covering the entire collection. If a fire breaks out in the storage facility, damaging several pieces, the equal-shares clause in each policy would ensure that both insurance companies contribute to the cost of restoration or replacement. This prevents one insurer from being solely responsible and ensures each pays their defined share of the loss.
Simple Definition
An equal-shares clause, found in insurance policies, is a provision that obligates an insurer to contribute its proportionate part toward a covered loss. This means if multiple insurers cover the same loss, each pays a share determined by the clause, rather than one insurer bearing the entire cost.