How much will Mr. Smith's insurers pay for a £50,000 insured loss if the garage is insured for £150,000 on a £200,000 value with average condition?

To determine how much Mr. Smith's insurers will pay for a £50,000 insured loss under the given conditions, we need to apply the principle of average in insurance. This principle is commonly utilized when a property is underinsured, meaning that the sum insured is less than the actual value of the property.

In this scenario, Mr. Smith's garage is insured for £150,000, while the total value of the property is £200,000. The average condition calculation involves the formula:

Insured Amount / Actual Value × Loss Amount

By substituting the given figures into the formula, we find the insurer's liability:

1. Insured Amount: £150,000
2. Actual Value: £200,000
3. Loss Amount: £50,000

Now we plug these numbers into the average formula:

(£150,000 / £200,000) × £50,000 = £0.75 × £50,000 = £37,500

This means that due to the application of the average condition, the insurers will cover only £37,500 of the £50,000 loss, reflecting the fact that the property was underinsured compared to its total value.