Understanding Apportionment in Insurance, Real Estate & More

What Is Apportionment?

Apportionment is the allocation of a loss among insurers covering the same property so each pays its share. For example, if two insurers each cover $60,000 of a $120,000 property, they would usually split a total-loss claim 50/50. It can also apply in workers' compensation, real estate, and other financial allocations.

Understanding Apportionment in Insurance Policies

Apportionments most often apply to situations of "other" or "double" insurance, where two or more insurance policies are taken out with the same insured party, on the same interest, on the same subject, against the same risks. Apportionments are most often defined in an apportionment or "other insurance" clause, which is usually part of the associated insurance policy.

An apportionment clause is a common provision found in both property and liability insurance policies. An apportionment clause prescribes the method for determining an insurer's portion of liability for loss where a property is covered by more than one insurance policy. Insurance proceeds are distributed according to this provision in proportion to the total coverage.

These provisions vary: some policies provide no coverage when other insurance is in place, some pay a pro-rata share, and others apply in case of excess losses not covered by the primary insurance policy. Apportionment clauses are intended to comply with the principle of indemnity, which states that an insured should not profit from an insured loss.

Apportionment and Its Role in Workers' Compensation

In the case of workers' compensation insurance, apportionment might refer to the division of liability for an occupational illness among employers. For example, if an employee falls ill, more than one employer might have contributed to the work conditions that caused the employee's illness.

How Apportionment Affects Real Estate Transactions

"Apportionment" has a different meaning in real estate. It typically refers to the allocation of property expenses, such as maintenance, insurance, and taxes, between the buyer and seller at the time of a transaction that involves a piece of real estate.

Buyers and sellers will usually apportion real estate taxes and other maintenance expenses for the month in which a real estate transaction takes place. This is done to ensure that the portion of property taxes earned by the local government before closing, but not yet paid because it is not yet due, will be paid by the seller in the form of a credit against the purchase price.

When the property tax bill is later received by the buyer, the buyer will pay the entire bill in full, having already received the equivalent reimbursement through the credit at closing.

In another real estate-related scenario, apportionment can also describe the division of financial responsibility for a property between tenants in common. Co-owners of a property may decide to apportion maintenance costs between themselves, according to the percentage of ownership or interest held by each party. 

The Bottom Line

Apportionment allocates a loss among insurers covering the same property, often under an "other insurance" clause when concurrent policies exist. It also applies to splitting taxes or maintenance in real estate deals, dividing liability among employers in workers' compensation, and allocating income or budgets in accounting and government.