Commercial policy limits: per occurrence, aggregate and sublimits

A policy limit is the most the insurer will pay, and commercial policies stack several kinds of limit on top of each other. The per-occurrence limit caps what one event can cost the insurer, the aggregate caps everything paid in a policy year, and a sublimit caps one specific coverage or item inside the larger limit. A "$1 million / $2 million" liability policy therefore does not mean $2 million of protection for every claim, and the gap between the sticker number and the money actually available is where most surprises come from.

The three kinds of limit

Two other ideas sit underneath these. A combined single limit (common in commercial auto) is one number for bodily injury and property damage together, instead of separate caps per person, per accident and for property. And a retained limit is what you pay before the policy responds, either a deductible or a self-insured retention. deductibles vs self-insured retentions: who pays first covers the difference.

The six limits in a general liability policy

The ISO commercial general liability form (CG 00 01 04 13) puts them in Section III. Each one has a defined job and a defined relationship to the others, and the order in which they are tested matters.

The form also states that these limits are the most the insurer will pay regardless of the number of insureds, claims or suits, or persons making claims. Everyone insured under the policy shares one set of limits. If you have named a landlord or a general contractor as an additional insured, their claim draws on the same money yours does, which is one reason contract-heavy businesses run through their aggregates faster than they expect.

Two details about timing. The limits apply separately to each consecutive annual period, so a policy written for three years gets a fresh aggregate each year, and if a policy is extended after issuance by less than 12 months, the extra time counts as part of the last period rather than creating a new aggregate. And the aggregate is not reinstated after a loss. Once it is paid out, the policy has nothing left for the rest of the year.

Defense costs under the standard occurrence-based CGL are paid in addition to the limits as supplementary payments, but the insurer's right and duty to defend ends once it has used up the applicable limit paying judgments or settlements. That is a cliff: the day the aggregate is exhausted, your lawyers stop being paid by the carrier. Policies that put defense inside the limit erode faster, which is a separate topic in defense costs inside vs outside policy limits: why it matters.

A worked example: an aggregate runs dry (hypothetical)

Say a 15-employee electrical contractor carries a CGL with a $1 million each occurrence limit and a $2 million general aggregate, and a separate $2 million products-completed operations aggregate. During one policy year:

1. A fire traced to its wiring on a job site causes $1.4 million in property and injury damage. The occurrence limit pays $1,000,000 and the contractor owes the rest. Aggregate remaining: $1,000,000.
2. A visitor slips on a cable at the shop and the claim settles for $400,000. Aggregate remaining: $600,000.
3. Eight months later a different customer's damage claim comes in at $750,000. The insurer can pay only $600,000. The contractor owes $150,000, and the carrier's duty to defend ends once it has paid that last $600,000.

A claim from a finished job, such as a failure two years after completion, would draw on the products-completed operations aggregate instead, so it would not have been affected by the three claims above. That separate bucket is the reason the standard form splits the two.

What counts as one occurrence

The CGL defines an "occurrence" as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. A pile-up of injuries from one cause is usually one occurrence with one limit, however many people are hurt. But the opposite fight happens too: policyholders sometimes argue that a series of events is many occurrences so each gets its own limit, and insurers argue the reverse when one limit is better for them. Courts in different states test this differently, many looking to the cause of the loss rather than the number of injured people. The wording of your policy and your state's case law decide it, which is a question for a coverage attorney rather than a guess.

Per-project and per-location aggregates

If one aggregate covers all your jobs or all your sites, a single big claim can leave the rest unprotected. ISO publishes endorsements that give each scheduled project or location its own general aggregate: CG 25 03 for designated construction projects and CG 25 04 for designated locations. They change only the general aggregate. The products-completed operations aggregate generally stays a single policy-wide limit, so check the wording. General contractor insurance see these requested in contracts routinely, and carriers often charge for them.

Sublimits: the caps inside the cap

A sublimit shrinks coverage for something specific while the main limit stays large. Property policies are full of them. In the ISO building and personal property form (CP 00 10 10 12), for example:

• Outdoor signs are limited to $2,500 per sign in any one occurrence.
• Pollutant clean-up and removal pays up to $10,000 per described premises in each 12-month policy period.
• The Increased Cost of Construction additional coverage is the lesser of $10,000 or 5% of the building limit.
• Fire department service charges pay up to $1,000 per premises, unless a higher limit is shown.

Cyber and crime policies use sublimits even more heavily, often for ransomware, funds transfer fraud and social engineering, and a policy that advertises a $2 million limit may pay $250,000 for the loss you actually suffer (ransomware sublimits and coinsurance in cyber policies). The same is true for flood, earthquake and named storm, which usually carry their own percentage deductibles and limits.

Always ask whether a sublimit is "included within" the main limit or "in addition to" it. The standard property form, for instance, pays debris removal beyond the building limit in some circumstances and not in others. The declarations and the endorsement schedule are where this lives, not the sales summary.

Limits in other policies

• Commercial auto is usually a single combined limit per accident, written on the declarations beside each covered-auto symbol (motor carriers also face federal minimums, covered in FMCSA insurance requirements and filings for motor carriers).
• Workers' compensation Part One has no dollar limit because benefits are set by state statute. Part Two, employers' liability, has limits; the standard offering in NCCI's Basic Manual is $100,000 each accident, $100,000 disease each employee and $500,000 disease policy limit, and contracts often require more (employers' liability insurance).
• Umbrella and excess policies sit above the underlying limits and have their own per-occurrence and aggregate caps. They do not always follow the underlying policy's sublimits (commercial umbrella insurance).
• Claims-made professional, D&O and cyber policies typically have one aggregate for the year that all claims share, and defense costs frequently reduce it.
• Property limits are per occurrence, with building and contents stated separately, and are subject to coinsurance unless agreed value applies.

A checklist for reading your limits

1. Find the each-occurrence and aggregate numbers on the declarations, and note which aggregate applies to which coverage part.
2. Check whether products-completed operations is a separate aggregate or folded into the general aggregate.
3. List every sublimit endorsement and every "limited coverage" extension.
4. Ask whether defense costs are inside or outside the limits.
5. Compare each number with what your contracts require (how to review the insurance requirements in a contract).
6. Ask what happens if the aggregate is used up mid-year, and whether it can be reinstated or topped up.
7. Decide whether an umbrella above the primary limits is worth buying (how much liability insurance does a business need?, How much umbrella coverage do I need?).

Key takeaways

• The per-occurrence limit caps one event; the aggregate caps the whole policy year, and it is not refilled after a loss.
• In a standard CGL, everyone insured shares one set of limits, and the duty to defend ends when the applicable limit is used up in judgments or settlements.
• Sublimits cap specific coverages inside the main limit and are where policies most often pay less than the headline number.
• Ask for per-project or per-location aggregates if you hold many jobs or sites, and read whether they cover completed operations.
• The right limit is the one your contracts, assets and umbrella program support, and a broker can compare it with what similar businesses carry.