Commercial general liability policies define the amount of insurance they will pay on behalf of the insured as a limit of liability. Policies may contain several types of limits and the each-occurrence limit is the maximum the policy will pay in the event of any one claim or occurrence. If a policy also contains a general aggregate limit, the aggregate is the maximum the policy will pay in total regardless of the number of occurrences.
Limit of Liability
The declarations page of a general liability policy will state exactly how much the policy will pay to third parties for claims on behalf of its insured. When purchasing insurance, the insured will specify how much in coverage is desired and a premium is charged accordingly. The higher the limits, the greater the premium that is charged, as this provides additional protection to the insured in the event of a claim.
An occurrence in a general liability policy is usually defined as an incident or a series of incidents that give rise to bodily injury or property damage resulting in a claim against the insured. When the claim is reported to the insurance company, the insured can expect the maximum amount paid to the third party will be limited to the each-occurrence amount specified on the policy’s declarations page.
Since the mid-1980s, standard general liability policies contain a general aggregate limit, which is the maximum amount the policy will pay on behalf of the insured. Without a general aggregate limit, the policy is obligated to pay up to the each-occurrence limit for an unlimited number of occurrences. This uncapped exposure presents a significant potential exposure to the insurance company. The general aggregate will limit the total exposure of the policy regardless of the number of occurrences. Once the aggregate has been paid, the policy is deemed to be exhausted.
Certain expenses in the management of an insurance claim are classified by the general liability policy as supplementary payments, which do not count toward the limit of liability. Common examples are bond fees, prejudgment interest and legal defense expenses. Not all policies treat supplementary payments in the same fashion. In some policies, the supplementary payments do count toward and exhaust the each-occurrence limit of liability. When they do not exhaust the limits, the insured can consider the policy to have a benefit in excess of the stated each-occurrence limit.