The Fundamentals of Liability Limits
In the world of commercial insurance, a policy is not a blank check. Every Commercial General Liability (CGL) policy contains specific monetary caps known as limits of insurance. These limits define the maximum amount the insurer will pay for covered losses. For the Property & Casualty exam, understanding the distinction between the Each Occurrence Limit and the Aggregate Limit is vital, as these concepts dictate how much protection a business truly has over the course of a policy period.
The CGL policy structure is designed to manage risk for the insurer while providing a predictable safety net for the insured. To master this topic, you should first review the complete General Liability exam guide to understand the underlying coverages (A, B, and C) that these limits apply to.
The Each Occurrence Limit
The Each Occurrence Limit is the maximum amount the insurer will pay for any one single "occurrence." Under the CGL policy, an occurrence is generally defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
This limit applies to the sum of damages under Coverage A (Bodily Injury and Property Damage) and Coverage C (Medical Payments). It is important to note that even if multiple people are injured in a single accident, the Each Occurrence Limit remains the maximum payout for that specific event. For example, if a business has a $1,000,000 Each Occurrence limit and a slip-and-fall results in $1,200,000 in damages, the policy will pay only $1,000,000, leaving the insured responsible for the remaining $200,000.
Occurrence vs. Aggregate Comparison
| Feature | Each Occurrence Limit | General Aggregate Limit |
|---|---|---|
| Scope | Applies to a single claim/incident | Applies to the entire policy term |
| Frequency | Available for every separate accident | Depletes with every paid claim |
| Reset | Does not 'reset'; it is a per-event cap | Resets only at policy renewal |
| Coverages Affected | Coverage A and Coverage C | A (except Products), B, and C |
The General Aggregate Limit: The Total Bucket
If the Each Occurrence limit is a cap on a single event, the General Aggregate Limit is the maximum amount the insurer will pay for the sum of all covered losses during the entire policy period (usually twelve months). Think of the General Aggregate as a bucket of money. Every time a claim is paid under Coverage A (except for products-completed operations), Coverage B (Personal and Advertising Injury), or Coverage C (Medical Payments), money is taken out of that bucket.
Once the General Aggregate limit is exhausted, the insurer's obligation to pay for any future claims—and often their duty to defend the insured—ceases for the remainder of the policy term. This is why many businesses choose to purchase 'Excess' or 'Umbrella' policies to provide additional layers of protection once the aggregate is reached.
Sub-Limits within the CGL Policy
The Products-Completed Operations Aggregate
One of the most frequent points of confusion on the exam is the existence of two separate aggregates. In a standard CGL policy, there are typically two 'buckets':
- General Aggregate: Covers premises, ongoing operations, personal injury, and medical payments.
- Products-Completed Operations Aggregate: Covers liability arising out of the insured's products or completed work.
These two aggregates are independent. A massive claim involving a defective product will deplete the Products-Completed Operations Aggregate but will not reduce the General Aggregate available for a slip-and-fall claim at the insured's office. Understanding this separation is crucial for correctly answering practice General Liability questions regarding total policy payouts.
Exam Tip: The 'Per Project' Endorsement