Error in Calculating Additional Compensation: Example 2
The Homeowner's loss recovery is $530,000. Assuming maximum amount of UEP recoverable, that still brings the total amount recoverable up to $531,750. According to the solution, if PACICC sends those additional funds, the total compensation exceeds this limit at $538,443. This doesn't seem right, or am I missing something here?
Comments
I assume you are referring to the Example 2 in the Wiki, correct?
I get your point, but for these type of questions (the additional compensation, different to Example 1 in the wiki - wording of question important), its a little different.
I like to think of it as so
Example 1 as - What is the real formal amount of money that one can get back
Example 2 as - If PACICC gets a bonus (over the amount they advanced), what more can I get.
Important to note how the questions differs/what they are asking!
Here is something from the source material -
"Before a payment is made to or on behalf of a policyholder, the policyholder is required
to certify that he or she has exhausted any available claim against any solvent insurer
with whom he has a policy that covers the same loss. Further, he or she is required to
assign to PACICC all of his or her rights against the insolvent insurer that arise under the
particular policy. This is normally dealt with in the wind-up order. The consequence of
this assignment for an insured with a claim of $300,000, as to which PACICC pays
$250,000, would be that the insured would receive no participation in a distribution of
$150,000 made by the liquidator of the insolvent insurer; if the distribution was $275,000,the insured would receive $25,000.
PACICC is also entitled to first priority against amounts received by the insured from
third parties with respect to the loss for which PACICC provided payment."
Basically what its saying is - If you are given an advance by PACICC, and PACICC receives an amount from the insolvent company that is larger than the advance amount, you can be eligible for more money (even if over the limit) because the liquidator’s later distribution can add extra recovery for the you (the insured) after PACICC has already been repaid its advance portion.