CGL Coverage Limits: How Do They Apply?
If you look at the first few pages (the Declarations) of a standard commercial general liability insurance policy, also called a “CGL policy," you’ll see a number of different policy limits listed. For those not familiar with insurance, it is not always clear which policy limits apply in which situations. It may surprise some businesses to know that their CGL policy does not always provide coverage up to the policy’s “limit," and that different limits may apply in different situations. This article will explain some of the common policy limits you may find in a CGL policy, and how those limits frequently relate to one another.
The Declarations of a standard CGL policy will generally list at least four different kinds of policy limits. The first is the General Aggregate Limit. This general aggregate limit is the most the insurance company will pay out for the policy period, regardless of how many different accidents or events are at issue (called an “occurrence" in insurance policy lingo) or individuals are involved. As an example, say that a business’s aggregate limit is $2 million, and the business experienced three different accidents in one policy period: (1) a customer slips and falls on business property, claiming $600,000 in damages; (2) a product sold or installed by the business causes a fire and damages a customer’s building, causing $1,100,000 in damages; and (3) an article on the business’s website and a series of commercials for the business are defamatory of a competitor’s business, and the competitor’s damages are $500,000. In this situation, assuming no exclusions or other limits apply, the aggregate limits would be enough to cover the first two accidents, which together total $1,700,000, since this is less than your $2 million aggregate limit. By the time the third accident occurs with a price tag of $500,000, however, there is only $300,000 left in the aggregate limit to cover additional claims. So, coverage for the third claim would be limited to $300,000, and there would be no coverage for subsequent claims.
The next common policy limit is called the Occurrence Limit. This is usually a sub-limit within the aggregate limit, and it is often (but not always) less than the aggregate limit. The occurrence limit is the most that an insurance company will pay for a single “occurrence," such as one accident or one event, under a CGL policy. Let’s examine this in the context of our three occurrences above, and assume that our policy has a $1 million per occurrence limit. In this situation, the first $600,000 would be within the $1 million occurrence limit. The second occurrence, however, causing $1,100,000 in damages, would exceed the occurrence limit of $1 million. Accordingly, only the first $1 million of the second occurrence would be covered under the policy. Thus, after the second occurrence, the insurance company would have paid $1,000,000 + $600,000, or $1,600,000, under the policy, leaving $400,000 available for the third claim.
Another common policy limit is the Personal and Advertising Injury Limit, it is also usually (but not always) a sub-limit of the occurrence limit. The personal and advertising injury limit frequently applies to any single person or organization, regardless of the number of “occurrences" involved. In the example above, where a website article and a series of defamatory commercials damage a competitor’s business, it is possible that the website article is a separate “occurrence" from each of the commercials, and therefore numerous occurrence limits would apply. However, because there is a separate limit for this specific kind of “personal and advertising injury" claim, and only one organization was damaged, the “personal and advertising injury" limit generally applies to all defamatory “occurrences" causing damage to this competitor.
The final common policy limit that we’ll discuss here is the Products/Completed Operations Aggregate Limit. Unlike the limits discussed in the preceding paragraphs, the products/completed ops limit is not generally a sub-limit of the general aggregate limit, and it may be its own independent limit. Like the general aggregate limit, the products/completed ops limit applies regardless of the number of occurrences or individuals damaged. However, instead of applying to all claims generally, the products/completed ops limit only applies to accidents occurring off-premises, and which are caused by a product or service you provided. For example, this limit frequently comes into play in construction defect actions, where a contractor defectively performs work on someone else’s property, and the owner files suit against the contractor after the work is completed. Occurrence limits generally apply within the products/completed ops limit. Consider the accident #2 above, where a product you provide or installed causes a fire at a customer’s building and causes $1,100,000 in damage to the building. A products/completed ops limit of $2 million would be enough to cover this liability; however, the occurrence limit of $1 million would also apply, and so coverage for this claim would nevertheless be limited to $1 million.
These are a few of the limits you may find in a CGL policy. Not all policies are the same, and these limits may apply differently depending on the wording found in your policy. In addition, other limits, such as those specifically addressing damage to rented premises or medical expense liability, may also apply, and your insurance agent or insurance coverage counsel can help you determine what policy limits appear in your policy, and how they may apply in any given situation.