Q.A godown valued at ₹8,00,000 is insured for ₹6,00,000. A fire causes damage worth ₹2,00,000. The policy has an average clause. Find the amount of the claim admitted.

Under the average clause the claim is the loss scaled by (sum insured ÷ property value).

$\text{Claim}=\dfrac{600000}{800000}\times200000=0.75\times200000=150000$.

The godown is under-insured (sum insured ₹6,00,000 $<$ value ₹8,00,000), so the average clause applies:

The ratio is $\dfrac{600000}{800000}=\dfrac{3}{4}=0.75$, so

Check (independent verification): the owner insured $\tfrac{3}{4}$ of the value, so he effectively self-insures $\tfrac14$ of every loss. One-quarter of ₹2,00,000 is ₹50,000 borne by the owner, leaving $200000-50000=₹1{,}50{,}000$ paid by the insurer — matching.

Paying the full loss ₹2,00,000 (ignoring the average clause), or dividing the sum insured by the loss instead of by the property value. The property value goes in the denominator.