The maximum liability method of calculating contribution yields unfair results when?

The maximum liability method of calculating contribution yields unfair results when?

• A. Both policies are similar
• B. Only one policy is subject to a policy excess
• C. There are multiple parties involved
• D. No policy excess is present

Answer: (B)

The maximum liability method of calculating contribution can yield unfair results when only one policy is subject to a policy excess. In this situation, if a loss occurs, the insurer with the excess would only pay out the amount above the excess, while the other insurer would cover the loss without any reductions. This leads to a scenario where the insured is only partially covered for their loss, creating an imbalance in how contributions are calculated among the insurers. The essence of the maximum liability method is to ensure that each policy contributes fairly according to their terms; however, the presence of a policy excess distorts this balance, resulting in potentially reduced recovery for the insured. In contrast, similar policies or the absence of multiple parties would not inherently create unfair outcomes under the method, as the contribution mechanisms would likely align more evenly without the complication introduced by differing excesses.

The maximum liability method of calculating contribution can yield unfair results when only one policy is subject to a policy excess. In this situation, if a loss occurs, the insurer with the excess would only pay out the amount above the excess, while the other insurer would cover the loss without any reductions. This leads to a scenario where the insured is only partially covered for their loss, creating an imbalance in how contributions are calculated among the insurers. The essence of the maximum liability method is to ensure that each policy contributes fairly according to their terms; however, the presence of a policy excess distorts this balance, resulting in potentially reduced recovery for the insured.

In contrast, similar policies or the absence of multiple parties would not inherently create unfair outcomes under the method, as the contribution mechanisms would likely align more evenly without the complication introduced by differing excesses.