The Lincoln Saltdogs is a professional minor league baseball team in the American Association League. The clubhouse is insured for $600,000 under a commercial property insurance policy with an 80% coinsurance clause.
The current replacement cost of the clubhouse is $1 million. After a playoff game for the league championship, a whirlpool tub for the players shorted out, and a fire ensued. The clubhouse sustained a $100,000 fire loss.
Ignoring any deductible, how much will the team's insurer pay for the loss?
This is what I have but I want to make sure I'm correct:
Clubhouse is insured for $600,000 with an 80% coinsurance clause
Current replace cost of clubhouse: $1,000,000
Fire loss: $100,000
Insured for only $600,000, since its insured value is less than 80% of its actual value of $100,000, when there is a loss, the insurance pays
(600,000/(0.80 * 1,000,000) * 100,000 = $75,000 will be paid for the loss by the insure.