Q.A factory building actually worth ₹2,00,000 is insured for only ₹1,50,000 under a fire policy containing an Average Clause. A fire causes a loss of ₹80,000. How much can the owner claim?

This is an under-insurance scenario governed by the Average Clause, which reduces the payable claim proportionately to the extent of under-insurance.

Step 1 — Identify the principle. The property (actual value ₹2,00,000) is insured for only ₹1,50,000 — this is a case of under-insurance. Where a fire policy contains an Average Clause, an under-insured claim is NOT paid in full; instead, it is reduced in the same proportion the sum insured bears to the property's actual value, so that the insured bears a share of every loss himself, exactly matching the proportion by which he under-insured.

Step 2 — Apply the Average Clause formula. Claim payable = (Sum Insured ÷ Actual Value) × Actual Loss.

• Sum Insured ÷ Actual Value = ₹1,50,000 ÷ ₹2,00,000 = 0.75 (i.e., the property was insured for only 75% of its true value).
• Claim payable = 0.75 × ₹80,000 = ₹60,000.

Step 3 — Independently verify (dual-solve). Re-computing the same ratio a second way: the property is under-insured by ₹50,000 out of ₹2,00,000, i.e., under-insured by 25%; applying that 25% shortfall to the ₹80,000 loss gives an uncompensated portion of 0.25 × ₹80,000 = ₹20,000, leaving a payable claim of ₹80,000 − ₹20,000 = ₹60,000 — this matches the Step 2 result exactly, confirming the computation. …