For the calculation of recovery after a loss, what formula should an insured remember?

The correct formulation for calculating recovery after a loss is rooted in the principle of indemnity and the idea of proportionality in insurance. The formula (Did carry / Should carry) * Loss effectively determines the amount of recovery an insured can expect after experiencing a loss, based on the insured value compared to the actual value of the property.

In this formula, "Did carry" refers to the amount of insurance that the policyholder had in place at the time of the loss, while "Should carry" represents the adequate or required amount of insurance they should have maintained based on the actual value of the insured property. This ratio ensures that if an insured party did not insure their property to its full value, they will not recover more than they actually insured. Consequently, this formula directly ties the insured's responsibility to the potential payout they can claim, maintaining an equitable balance in the recovery process.

The other options do not accurately represent the correct approach to calculating the recovery in an insurance context. For example, lost value plus replacement cost does not account for proportionality and could lead to the insured either overestimating or underestimating their recovery. Similarly, the option suggesting the recovery based on insured value divided by market value fails to relate back properly to the loss suffered