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The
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FKDKHATKD BUSINESS PUBLICATIONS, INC.
420 Lexington Ave.
New York
IN
aide Review
Serving
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the Entire % ^^M&?
Vol. 89
December, 1930
Music
Single Copies
Twenty Cents
Annual Subscription
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Industry
No. 12
CASE
DOES YOUR
INSURANCE
PROTECT?
By CLARENCE T. HUBBARD
Authority
T'S easy for a music dealer to say—-"put
$100,000 fire insurance on my fixtures,
equipment and stock"—but it's worse than
a drop in the stock market to find that
you are only partially covered when a loss
occurs because you didn't understand the pro
rata distribution clause, the reduced rate contri-
bution clause, the three-fourths value clause or
the iron safe clause. For some of these clauses
there is a credit in your rate or premium, as
explained.
In these days of financial readjustment it is
extremely important that music dealers be clear
on certain fire insurance policy clauses. To
produce profits by scientific business promo-
tion, advertising and efficient economy and then
to lose by insurance carelessness is not a de-
fensive business policy.
Consider first the pro rata, or, as sometimes
called, the average distribution clause. What
is it? What does it do? Has your agent or
broker ever illustrated with pencil and paper
its functions?
When you cover inore than one building, or
stock in more than one building under one fire
insurance policy covering blanket over all and
you do not insure fully to value—the pro rata
distribution average clause is usually attached
to the fire insurance policy. There is no charge
for it or for excluding it—and usually it is
mandatory to have it attached to your fire in-
surance policy.
The clause reads: "It is a condition of this*
contract that the amounts- covered hereundcr
shall attach in or
other structure and/or place in that proportion
I
of the amount hereby covered that the value
of the property covered by this policy in or on
each said building, shed and other structure
and/or place shall bear to the value of all of
the property described herein."
How it functions is very important. Assume
that you have a store in one building, a service
department in another and in the rear a ware-
house. The total contents are worth, say, $200,-
000. You order a blanket fire insurance policy
Here are some things
about trick fire-insur-
ance clauses which the
merchant should know
for his own protection
for, say, $100,000 to cover over the contents of
these three locations. In the store the value
of the contents is $100,000, in the service de-
partment, $40,000, while in the warehouse you
have $60,000 worth of pianos stored. But your
policy is only for $100,000 over all. A fire
occurs and causes damage to the amount of
$10,000 in the warehouse. How much do you
collect under the pro rata distribution clause?
The amount of insurance you arc entitled to
collect is represented in what the value (not
the amount of insurance) of the contents of
the destroyed warehouse ($60,000) bears to the
total value of the contents of all three locations
($200,000) as applied to the total fire insurance
3
on Fire Insurance
carried. That is what 60,000/200,000—the value
in the warehouse to the value of the store, the
service department and warehouse combined—
bears to the total insurance carried ($100,000") or
6/20 of $100,000, which is $30,000. You can
follow this better with pencil and paper. The
amount of $30,000, then, is the proportion of
insurance applying to the warehouse—$30,000
insurance, $60,000 values. If the warehouse was
totally destroyed and the contents were valued
at $50,000, you would under the circumstances
outlined collect $30,000. That is the positive
limit over all, and the pro rata distribution
clause inserted in your fire insurance policy. If
there was a loss of $29,000 you would collect
$29,000 or any lesser sum, but not over $30,000.
The example given was based on the assump-
tion that the values were insured in keeping
with the co-insurance clause attached. In the
above example the aggregate values in all of
the buildings was $200,000 and the amount of
insurance covering blanket over all was $100,-
000, which was on the basis of 50 per cent co-
insurance, meaning you insured only one-half
of your property. Now assume that the total
values contained in all of the buildings at the
time of a fire were $300,000, and still only
$100,000 in insurance was carried. Then the
whole picture would be changed. First you
would apply the pro rata distribution clause and
(hen, secondly, the co-insurance clause. First,
then, the pro rata distribution average clause
would distribute the insurance on the basis of
what the values in building three—say still
$60,000—bore to tin- total value of $300,000 or
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