Co-Insurance Law and Legal Definition

Coinsurance is an arrangement whereby two or more parties share the same risk. A co-insurer is not obliged to follow the decision of another co-insurer, except where they have given authority for the other party to act on their behalf. In other words, it is a method of sharing of an insurance risk, common when claims could be of such size that it would not be prudent for one company to underwrite the whole risk. Under this arrangement, the underwriter will be liable up to a stated limit, and the coinsurer's liability will be for amounts above that limit. Insurance policies on hazards such as fire or water damage often require coverage of at least a specified coinsurance percentage of the replacement cost. The term coinsurer means two or more insurance companies sharing a single risk under a subscription policy. The total participation of all coinsurers adds up to 100% of the risk, and each coinsurer has a separate contract with the Assured. In such a situation, each company is a direct insurer and not a re-insurer.