In the example where both the husband and wife have policies on a rental house, how is the liability loss shared?

The correct answer is determined by the principle of contribution, which applies when multiple insurance policies cover the same risk or loss. In this scenario, where both the husband and wife have policies on a rental house and a liability claim arises, the liability loss is shared in proportion to the total policy amounts.

This means that if each policy has a different limit of coverage, the payout from the insurance companies towards the loss will be divided based on the ratio of each policy's limit to the total sum of both policies. For example, if the husband's policy has a limit of $100,000 and the wife's policy has a limit of $50,000, the total coverage available is $150,000. The husband’s policy would contribute two-thirds of the liability loss (since $100,000 is two-thirds of $150,000), while the wife’s policy would contribute one-third.

This method ensures that both parties share the financial responsibility of the claim in a fair and equitable manner, reflecting their respective levels of insurance coverage. This is especially important in ensuring that both policies contribute appropriately, preventing one party from bearing the entire financial burden of a claim when both are liable.