Which insurance policy clause triggers the calculation of actual settlement amounts by multiplying the loss claimed by the sum insured?

The clause that triggers the calculation of actual settlement amounts by multiplying the loss claimed by the sum insured is the Average clause. This clause is specifically designed to address situations where the insured sum is less than the actual value of the property at risk. If a loss occurs and the insured value is inadequate, the Average clause penalizes the insured by reducing the payout proportionately to the underinsurance.

For instance, if a property worth £100,000 is insured for only £80,000, and a loss of £20,000 is claimed, the settlement would be calculated based on the proportion of the sum insured to the actual value. Hence, the payout would be adjusted accordingly, effectively providing only 80% of the loss value, leading to a settlement of £16,000 in this scenario. This mechanism encourages policyholders to insure their property at its full value to avoid reductions in claims settlement.

The other clauses listed, such as Arbitration, Contribution, and Subrogation, deal with different aspects of insurance claims and settlement processes. Arbitration refers to resolving disputes outside of court, Contribution deals with multiple policies covering the same risk, and Subrogation involves the insurer's right to pursue a third party for recovery of loss after settling a claim.