$1 million / $2 million: how to read your liability limits

On a general liability policy, “$1 million / $2 million” often means a $1 million limit for each occurrence and a $2 million general aggregate. The first limits payment for one covered occurrence; the second limits the combined payments that count toward that aggregate during the applicable period. Check the labels: the numbers alone are incomplete. ²

Suppose a client asks whether your business has “$2 million in liability insurance.” You see $2 million on your certificate and are ready to say yes. Before you answer, find out whether the client means a limit for one occurrence, an aggregate, or a combination of policies.

That distinction can change the answer.

Read the label beside each number

Each occurrence refers to a single covered occurrence under the policy. One incident can involve several injured people or claims; that does not automatically give each person a separate occurrence limit. ²

General aggregate is the total available for the payments assigned to that aggregate over the applicable period, commonly a year. It is not a separate amount you add to the occurrence limit. ²

Think of the two numbers as two checks: how much can apply to this occurrence, and how much remains in the relevant total? Both matter.

Three losses, one running balance

Consider this deliberately simplified example for a hypothetical business:

• Each-occurrence limit: $1,000,000.
• General aggregate at the start: $2,000,000.
• Three separate covered bodily-injury or property-damage occurrences, all assigned to the same general aggregate in the same annual period.
• No deductible, smaller applicable limit or other insurance. For this example, defense expenses do not reduce the limits.

Assume the covered damages are resolved and paid in the order shown. These are invented amounts to explain the arithmetic, not estimates of claim costs.

Two limits work together: the cap for each occurrence and the remaining general aggregate for these bodily-injury or property-damage occurrences. Assumptions above apply throughout.

First: The $800,000 loss fits within the occurrence limit. After payment, $1.2 million remains in the aggregate.

Second: There is $1.2 million left, but the occurrence limit still caps this payment at $1 million. The extra $300,000 is above what this policy pays in the example. The aggregate falls to $200,000.

Third: The $500,000 loss is below the occurrence limit, but only $200,000 remains in the aggregate. That is all this policy pays in the example.

The three losses total $2.6 million. Payments total $2 million. The remaining $600,000 sits above the available limits in this illustration. A larger aggregate alone would not have removed the occurrence cap on the second loss.

Other numbers may also matter

A declarations page (the policy’s summary of key information) can list several different limits. The Travelers-hosted S3D-CG (7/02) specimen declarations, for example, lists separate entries for the general aggregate, products-completed operations aggregate, personal and advertising injury, each occurrence, damage to rented premises and medical expenses. Read those labels before comparing the amounts. ³

Products-completed-operations damages may use a separate aggregate, and personal/advertising injury has a differently defined limit. Match the loss to the applicable policy limit; the simplified example above does not model every coverage category. ²

A sublimit is a smaller cap that applies to a specified part of the coverage. A deductible is an amount the policy makes your responsibility. Look for the terms explaining how each applies, rather than assuming the largest number on the page answers every question. The declarations and deductible definitions in The Hartford’s business-insurance glossary provide a useful starting point. ⁴

Also ask how defense expenses are treated. The specimen general liability form cited here places specified defense-related payments outside the limits, but your issued form and endorsements need checking. ²

Where to check your own limits

Start with the declarations, then read the policy’s limits section and any endorsements that modify it. The certificate is useful for finding summary figures, but it is not a record of every term or a running claims balance.

If a client provides an insurance requirement, put it beside the actual labels. Highlight wording such as “each occurrence,” “aggregate,” “per project” or “per location” and ask your agent how it compares with your coverage. Do not assume those arrangements exist just because a contract requests them.

Five questions worth asking

1. Which number is the each-occurrence limit, and which aggregate applies to the situation we are discussing?
2. Are there separate or smaller limits that I should understand?
3. Do a deductible, retention or defense expenses affect the amount available?
4. Have payments reduced the relevant aggregate, and how can I confirm what remains?
5. Does the client’s requirement call for something different from my current policy?

Bring the policy documents and the client’s actual request to that conversation. You will get a more useful answer than asking whether you have “enough coverage” without identifying the situation.

If you would like help understanding the limits shown on your business insurance documents, contact Renwell.

The example illustrates limits only. Actual coverage and payment depend on the claim, issued policy and endorsements.

Sources

1. The Hartford: General aggregate limits. Secondary overview; the precise definitions here rely on the specimen in source 2 rather than the page’s claim/occurrence or umbrella/excess shorthand.
2. ISO CG 00 01 12 07 specimen hosted by Hiscox, Section III (page 10) and Supplementary Payments (pages 8–9). Principal form evidence for the illustrated limits; dated example, not a universal current policy, governing law or your issued terms.
3. Travelers-hosted S3D-CG (7/02) specimen declarations, six labeled limits. Supplied file has one page, marked page 1 of 2; no unprinted brand attribution is inferred.
4. The Hartford: Business insurance glossary.