36. XYZ Trucking Company has a Commercial Property policy with a franchise deductible of $100,000. A severe storm causes $965,000 in covered damage to their property. Considering the type of deductible, how much of this loss will XYZ Trucking Company be responsible for paying out-of-pocket?
Answer: B
XYZ Trucking Company will be responsible for paying $0 out-of-pocket.
Due to the franchise deductible of $100,000, XYZ Trucking Company is not required to pay any out-of-pocket expenses for the damages incurred, as the total loss exceeds the deductible amount.
A) $865,000
This option incorrectly suggests that XYZ Trucking Company would pay the amount of the loss minus the deductible. However, with a franchise deductible, the company is not responsible for any costs unless losses exceed a certain threshold, and in this case, they do not pay out of pocket.
B) $0
This is the correct answer. With a franchise deductible of $100,000 and a total loss of $965,000 due to the storm, the company is not liable for any out-of-pocket expenses. The coverage fully applies, and the deductible does not affect their financial responsibility in this instance.
C) $100,000
This option is incorrect as it implies that XYZ Trucking Company would have to pay the deductible amount. In a franchise deductible scenario, the company is not liable for any out-of-pocket payment when the total loss exceeds the deductible amount, which is true in this case.
D) The policy limit
This option is misleading as it suggests that the company would pay up to the policy limit. However, the deductible structure means that the company does not incur any payment out of pocket since the covered loss far exceeds the deductible.
Conclusion
XYZ Trucking Company's situation illustrates how a franchise deductible functions, where the total loss exceeding the deductible results in no out-of-pocket expense for the insured party. All other options incorrectly interpret the deductible implications, confirming that the correct answer is definitively $0.