You may or may not know that commercial insurance policies typically have more than one limit of liability associated with differing coverage.
For example, a commercial general liability policy may have a separate limit of liability for premises and operations coverage, personal and advertising injury, and products and completed operations, all of which are separate coverage types.
All coverage is subject to an “each occurrence” (also referred to as a “per occurrence”) and an “aggregate” liability limit.
These two limits are designed to specify how much money the insurer is willing to pay, in total, for damages that result from covered causes of loss (insurance claims).
Let’s explore what these terms mean with regard to a commercial insurance policy.
Each Occurrence Liability Limit
It’s possible to have multiple claims made against a policy within a single 12-month policy term.
The “each occurrence” limit is the maximum amount an insurer will pay for damages resulting from one claim or single occurrence.
Imagine if a convenience store (a very unlucky one) were to have two claims in the same year.
Each claim would be subject to a maximum pay out for damages. Both insured parties would be able to collect a maximum of $100,000 in damages if the “each occurrence” limit was $100,000.
In fact, up to $100,000 in insurance money would be available to an unlimited number of injured claimants within the term of a single insurance policy.
The claims payments could easily get out of control in the event multiple people were hurt throughout the course of one policy term.
Insurance policies have a stop-gap in place to protect themselves from the potential of multiple claims in one year; known as the policy aggregate limit.
Aggregate Liability Limit
Commercial insurance policies are subject to an aggregate liability limit in order to protect themselves against paying for multiple liability claims within a policy term.
The aggregate limit is the maximum amount of money an insurer will pay for covered claims within one policy period…regardless of how many claims are filed.
Let’s assume the convenience store’s liability policy had an aggregate limit of $300,000.
Perhaps as many as five different people sued the store for $100,000 in five separate occurrences.
The insurance policy would respond to each claim by paying the necessary amount of damages until the policy aggregate limit was reached.
No individual would be able to collect more than $100,000 (the “each occurrence” limit).
Once the policy aggregate limit was reached, the insurer would wipe their hands of additional claims, leaving the store owner to settle (and hopefully keep their floor dry from now on).
As discussed above, there are multiple different liability limits available on commercial insurance policies.
Contact your insurer or insurance agent if you have any concern regarding your coverage limits.