Each commercial general insurance policy contains defined limits. These limits are listed on the declarations page and in the policy. It is crucial to understand these limits in order to ensure that you have sufficient coverage in all areas and that you are properly insured against risks.
Here are the six limits of liability in a general liability policy.
- 1 1. 1.General Aggregate
- 2 2. 2.
- 3 3. Operation to complete the product
- 4 4. Personal & Advertising Injury
- 5 5. Premises Damage – You
- 6 6. 6.
- 7 Bottom line
1. 1.General Aggregate
The insurance policy’s general aggregate limit determines the maximum amount an insurer will pay to cover claims for a given time. The general aggregate limit is applicable to:
- Coverage A : Bodily Injury or Property Damage
- Coverage A: Advertising and personal injury
- Insurance C: Payments for medical conditions
A single large claim can be subject to the general aggregate limit, or a series smaller claims that add up to the limit. The insurance carrier will not pay any additional funds for claims if all claims within the policy term exceed the aggregate limit. Any resulting claims must be paid by the business.
This limit does NOT apply to claims arising out of products-completed operations hazards. These often have their own limit.
Example of General Aggregate
Imagine that your insurance policy has a $1 million limit for each occurrence and a $2,000,000 aggregate limit. Imagine you have three claims for $800,000. This is a total $2.4 million worth of claims. If your aggregate limit exceeds $2 million, then you are liable for $400,000 if the claimant wins their case.
An insurance company will only pay a certain amount for any given claim. This limit is called the per-occurrence cap and it is stated on your insurance policy’s declarations page. The per-occurrence limit often equals half the general aggregate limit.
If the aggregate limit is $2,000,000, then the per-occurrence limit could be as high as $1 million. Each insurance carrier and policy are different so make sure you understand the limits set by your policy. Sometimes, the per-occurrence limit may be equal to the aggregate limit. This limits the coverage that a policy will cover.
The claim amount will be reduced by the per-occurrence limit whenever there is a loss.
Example of Per Occurrence
Let’s say you have a policy that has a $1,000,000 per-occurrence limit and $2 million aggregate limit. The insurance company would pay $1 million for a $1.1 million claim. However, the business will likely be liable for any difference.
3. Operation to complete the product
Based on the liabilities arising from products or work completed, the product-completed operations limits determines how much will be paid. This coverage limit must be activated if the loss occurs outside of business operations. This coverage limit does not impact the general aggregate limit. It stands alone. It is possible to have claims that meet the general aggregate limit and a product-completed operation limit.
Example of Product-Completed Operations
Imagine a general contractor with a policy of general liability that covers $2 million in aggregate and $1 million for product-completed operation. The product-completed operation limit would pay $200,000 for injuries if a staircase the contractor constructed falls on the client. This claim would not affect the general aggregate limit of $2 million.
4. Personal & Advertising Injury
Personal and advertising injuries refer to things such as libel or defamation that you are accused of. This coverage does not have a general per-occurrence limit. The personal and advertising injury limits apply to each claimant, not to the entire occurrence. If more than one person is injured by an incident, they will each be eligible for compensation. It does however reduce the overall limit when a claim has been made.
Example of a Personal and Advertising Injury
Your policy covers general liability up to $2 million. There is also a $500,000. personal and advertising injury limits. You post something on Facebook about a competitor. The comment becomes viral. Your competitor loses customers due to the comment. The claim is false and your company is sued for $300,000. This claim is paid for by the personal and advertising injury limits, which pay to defend you. The aggregate limit drops by $300,000.
5. Premises Damage – You
Many business owners lease commercial space. They are required to have liability insurance. This coverage requirement often requires that you have at least $1 million of coverage per event. Each event counts towards the overall aggregate. This coverage requirement is not the same thing as the per-occurrence limit. However, these two can often be combined to make the total aggregate $1 million.
This coverage limit kicks in when damage is done. Fire damage is common, but vandalism, burst pipes and other perils that cause damage to the leased property are also covered.
Premises Damage – Rented to you Example
Let’s say you have a policy that covers $2 million in general aggregate and $1,000,000 for damage to your rental properties. A small fire breaks out when the microwave in the breakroom is set on fire. The fire department arrives to put out the flames.
Your contents are covered under a business property insurance policy. However, damage to walls, floors, and ceilings are covered by your coverage for damage to premises rented by you. The annual aggregate amount will be reduced to $1.7million if the amount exceeds $300,000.
This insurance is considered no fault and provides first aid and medical bills for anyone who sustains bodily injury on-premises. It covers reasonable expenses, subject to the policy’s medical expenses limit. The claim amount reduces the aggregate limit.
Example of Medical Expense
Let’s say you have a $2 million aggregate limit and a $1 million medical expense limit. A senior man falls and breaks his hip in your establishment. Your insurance will cover the cost of transportation and any medical bills that result from the fall, up to the policy limit of $1 million. The claim amount also reduces the aggregate limit.
You can make sure you are adequately protected against different risks by understanding when general insurance is required and the policy limits. To ensure that you have the correct amount of coverage, you should consult your agent. You can also increase coverage where you feel you are most exposed. Your business and you may be held responsible if a claim exceeds these limits.