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Instead, we will determine the most we will pay Example 1 (Underinsurance) using the following steps: When: The Net Income and operating Step (1): Multiply the Net Income and operating expenses for the 12 months expense for the 12 months following the following the inception, or last inception, or last previous anniversary previous anniversary date, of date, of this policy by the Coinsurance this policy at the described percentage; premises would have been: $400,000 Step (2): Divide the Limit of Insurance for the The Coinsurance percentage is:50% described premises by the figure The Limit of Insurance is: $150,000 determined in Step (1); and The amount of loss is: $80,000 Step (3): Multiply the total amount of loss by the Step (1): $400,000 x 50% = $200,000 figure determined in Step (2). (the minimum amount of insurance to We will pay the amount determined in Step (3) or meet your Coinsurance requirements) the limit of insurance, whichever is less. For the remainder, you will either have to rely on other Step (2): $150,000 ø $200,000 = .75 insurance or absorb the loss yourself. Step (3):$80,000 x .75 = $60,000 In determining operating expenses for the purpose We will pay no more than $60,000. The remaining of applying the Coinsurance condition, the $20,000 is not covered. following expenses, if applicable, shall be deducted from the total of all operating expenses: Example 2 (Adequate Insurance) (1) Prepaid freight – outgoing; When: The Net Income and operating (2) Returns and allowances; expenses for the 12 months following the inception, or last (3) Discounts; previous anniversary date, of (4) Bad debts; this policy at the described premises would have been: $400,000 (5) Collection expenses; The Coinsurance percentage is:50% (6) Cost of raw stock and factory supplies consumed (including transportation The Limit of Insurance is: $200,000 charges); The amount of loss is: $80,000 (7) Cost of merchandise sold (including The minimum amount of insurance to meet your transportation charges); Coinsurance requirement is $200,000 ($400,000 x (8) Cost of other supplies consumed 50%). Therefore, the Limit of Insurance in this (including transportation charges); example is adequate and no penalty applies. We will pay no more than $80,000 (amount of loss). (9) Cost of services purchased from outsiders (not employees) to resell, that This condition does not apply to Extra Expense do not continue under contract; Coverage. (10) Power, heat and refrigeration expenses E. Optional Coverages that do not continue under contract (if If shown as applicable in the Declarations, the Form CP 15 11 is attached); following Optional Coverages apply separately to (11) All payroll expenses or the amount of each item. payroll expense excluded (if Form CP 1. Maximum Period Of Indemnity 15 10 is attached); and a. The Additional Condition, Coinsurance, (12) Special deductions for mining properties does not apply to this Coverage Form at the (royalties unless specifically included in described premises to which this Optional coverage; actual depletion commonly Coverage applies. known as unit or cost depletion – not percentage depletion; welfare and retirement fund charges based on tonnage; hired trucks). CP 00 30 10 12 © Insurance Services Office, Inc.,2011 Page 7of 9