Liability insurance protects businesses and professionals when problems occur, but the coverage provided is subject to various conditions and limits, including a limit or cap on the total amount of money the insurer will pay for each and every claims filed and reported during a given policy period. In this newsletter, we explain such “aggregate limits” and their usefulness in customizing insurance coverage based on a company’s risk exposure and budget. here we focus on commonly made and reported claims policies issued to professionals, but aggregate limits also apply in the context of general liability.
what is an aggregate limit of liability?
- Personal liability policies, including professional liability/e&o policies, include certain limits on the coverage(s) available for third party claims (including lawsuits) brought against an insured for a specified policy term (usually one year). ).
- Unlike a per-claim limit, which sets the amount an insurer will pay for each individual claim made during the policy period, the aggregate limit is the maximum amount an insurer will pay for all claims made against the insured during the term of the policy. policy period, no matter how many separate claims may be made.
- Unless otherwise specified in the policy or on the “declarations” page, all valid claims covered by the liability policy count toward the total limit, including claims made against additional insureds.
- The aggregate limit applies to both indemnity payments and defense costs incurred on behalf of the insured. When the cumulative sum of all payments an insurer has made during a single policy period exceeds the aggregate limit, the policy coverage is exhausted. this means that the insurer is released from its obligation to defend the insured (or any additional insured) in any ongoing or subsequent litigation, and the insured must pay any outstanding damages or claim expenses out of pocket.
- if/when a policy is renewed, the aggregate limit balance is also updated or renewed, according to the agreed upon renewal terms.
- Insurers use aggregate limits to protect themselves from unexpectedly high individual payments, allowing them to keep premiums affordable for all customers.
- For policyholders, aggregate limits can serve as tools to customize your insurance coverage to appropriately reflect your risk exposure and available budget.
- If an insured faces modest risk exposure and is on a limited budget, purchasing a policy with a lower aggregate limit may provide sufficient protection while keeping policy premiums lower and more affordable. Alternatively, if the insured has more substantial risks and a larger budget, the insured can increase their limits to provide more security for a higher premium.
Why are aggregate limits useful?
newsletter provided by phelps dunbar, llp. Disclaimer: The information contained in this newsletter is for general guidance and educational purposes only and does not constitute legal advice. The discussion of insurance policy language is descriptive only; each policy has different language and is subject to different terms and conditions. check your own policy for your specific language.