Under which circumstance does the no benefit to bailee provision apply?

The "no benefit to bailee" provision is a key component in property insurance that limits a bailee's ability to benefit from the property being insured, particularly in the context of loss payments. This provision ensures that if a bailee—someone who temporarily has possession of someone else's property—is responsible for that property, they cannot gain any financial benefit from the insurance policy covering the property.

In the context of the question, the correct choice indicates that the no benefit to bailee provision applies specifically when there is a loss payment made to a bailee. This means that the insurance payment for a loss would not enhance the bailee's financial position, as they are essentially just responsible for the safekeeping of the property. It underscores the principle that while the insured property is protected, the bailee does not receive a payout for any loss under the policy.

In contrast, the other scenarios listed do not relate directly to the core definition of the provision. If a bailee incurs damages, it does not necessarily invoke the provision, as the focus is on loss payments rather than damages they might experience. The option regarding a bailee's liability limits reached is more about concluding coverage rather than the immediate impact of the no benefit to bailee clause. The situation