How Many Limits Are Found in a CGL Policy?

A Commercial General Liability (CGL) policy provides essential protection for businesses, safeguarding against financial losses that can arise from various common business risks. This type of insurance is designed to cover claims involving bodily injury, property damage to others, and personal or advertising injury. Understanding the financial limitations within these policies is crucial for policyholders, as these limits define the maximum amounts an insurer will pay for covered claims. Businesses must comprehend how these limitations function to ensure adequate protection and avoid unexpected out-of-pocket expenses.

Core CGL Coverages

A CGL policy includes several fundamental types of coverage, each addressing specific risks. Coverage A, Bodily Injury and Property Damage Liability, protects against claims alleging physical harm or property damage to others. For example, if a customer slips on a wet floor in a retail store and is injured, or a contractor accidentally damages a client’s property during renovation, these incidents typically fall under Coverage A. This coverage is usually provided on an “occurrence” basis, meaning it covers incidents that happen during the policy period, regardless of when the claim is filed.

Coverage B, Personal and Advertising Injury, addresses non-physical harms such as libel, slander, false arrest, wrongful eviction, and copyright infringement in advertisements. For instance, a claim of false arrest against a retail store’s security team or allegations of copyright infringement in a company’s marketing campaign would be covered here.

Coverage C, Medical Payments, provides for reasonable medical expenses for injuries to non-employees sustained on the insured’s premises or due to their operations, regardless of fault. This “no-fault” coverage aims to promptly settle minor medical claims, potentially reducing the likelihood of a lawsuit. An example would be a guest getting injured at an event hosted by a business and requiring immediate medical attention.

Primary Financial Limits

CGL policies feature two fundamental financial limits that dictate the maximum payout amounts. The Per Occurrence Limit, also referred to as the Each Occurrence Limit, represents the maximum amount the insurer will pay for all damages arising from a single “occurrence.” An occurrence is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. This limit primarily applies to claims under Coverage A and Coverage C. For example, if a business has a $1 million per occurrence limit and faces a $1.2 million claim from a single incident, the policy would pay $1 million, with the business responsible for the remaining $200,000.

The General Aggregate Limit establishes the maximum total amount the insurer will pay for all claims combined under Coverages A and B during the policy period, typically one year. Once this aggregate limit is reached through paid claims, the policy will not cover further claims that fall under this aggregate until it renews. Payments made under Coverage A, Coverage B, and Coverage C all reduce this general aggregate limit. The per occurrence limit and the general aggregate limit are interrelated; any payment made for a single occurrence reduces both the per occurrence limit for that specific incident and the overall general aggregate limit.

Additional Policy Limits

Beyond the primary financial limits, CGL policies include other distinct limits applying to specific types of claims. The Personal and Advertising Injury Limit specifies the maximum amount the insurer will pay for claims under Coverage B. This limit is typically equal to the Per Occurrence Limit but is dedicated solely to personal and advertising injury claims. For instance, if a business faces multiple claims of libel, the insurer will not pay more than this designated limit, regardless of the number of offenses or claimants.

The Medical Payments Limit sets the maximum amount available for medical expenses for any one person injured on the insured’s premises or due to their operations. This limit is a per-person limit, often set at amounts like $5,000 or $10,000, and applies irrespective of liability, facilitating prompt payments. While it applies separately to each person, it is often a sub-limit of the Each Occurrence Limit, meaning payments made under Medical Payments will reduce both the Each Occurrence Limit and the General Aggregate Limit.

The Products-Completed Operations Aggregate Limit is a separate aggregate specifically for claims arising from products manufactured or sold by the insured, or from operations that have been completed. This limit is independent of the General Aggregate Limit, meaning payments made under one do not reduce the other. For example, if a construction company finishes a project and later a defect in their work causes property damage, claims related to this would fall under the Products-Completed Operations Aggregate Limit.

How Limits Operate

The financial limits within a CGL policy interact dynamically throughout the policy period. When a claim is paid, it reduces the available amount under both the Per Occurrence Limit for that specific incident and the relevant Aggregate Limit. This reduction process, often termed “erosion of limits,” means that as claims are settled, the remaining coverage for future claims within that policy period diminishes. For instance, if a business has a $1 million per occurrence limit and a $2 million general aggregate limit, a $300,000 paid claim will reduce both the per occurrence availability for that incident and the general aggregate by $300,000.

Aggregate limits typically reset annually, replenishing the total amount of coverage available for the upcoming year. However, the per occurrence limit does not “reset” for a single incident; it applies to each new, distinct occurrence. If a policy period is extended beyond 12 months, the aggregate limits generally do not automatically reinstate for the additional period, meaning the same aggregate limit applies to the entire extended duration.

Deductibles and Self-Insured Retentions (SIRs) also influence limits. These are amounts the insured must pay out of pocket before the insurance company begins to cover a loss. The policy limits apply only after the deductible or SIR has been met, effectively reducing the insurer’s payout for any given claim. Most CGL policies pay defense costs, such as legal fees and investigation expenses, outside the policy limits. This arrangement ensures that the full limits of liability remain available to pay for damages, settlements, or judgments, rather than being eroded by the costs of defending a lawsuit.