What Is Aggregate Liability and How Does It Work?

Aggregate liability is the maximum amount an insurance provider will pay for all covered claims filed during a single policy period. This figure, found in commercial and professional liability insurance, acts as a cap on the insurer’s financial exposure for the policy term, which is usually one year. Once the total payments for claims reach this ceiling, the insurer’s obligation to pay for further losses ends. This allows insurance carriers to manage their potential risk, which helps keep premiums affordable for businesses.

Core Components of Liability Limits

A liability insurance policy features two primary types of limits that define the scope of coverage. The first is the per-occurrence limit, which specifies the maximum amount the insurer will pay for a single incident or claim. For any one event, the payout cannot exceed this specific figure, regardless of the total damages. The second component is the aggregate limit, which is the overall cap for all claims paid throughout the policy term.

A business owner might see a policy with a $2,000,000 general aggregate limit and a $1,000,000 per-occurrence limit. A common misunderstanding is that the policy would cover a single catastrophic event up to the full $2,000,000. In reality, the per-occurrence limit would cap the payout for that single event at $1,000,000, and the policyholder would be responsible for any amount exceeding that. The aggregate limit only comes into play as multiple claims are filed.

Application of the Aggregate Limit

To understand how the aggregate limit functions, consider a consulting firm with a general liability policy. The policy has a per-occurrence limit of $1 million and a general aggregate limit of $2 million for the calendar year. Early in the policy year, a client sues the firm, resulting in a covered loss of $700,000. Since this amount is below the per-occurrence limit, the insurer pays the claim, reducing the available aggregate limit to $1.3 million.

Several months later, a different incident leads to another claim for $800,000. The insurer pays this amount, and the available aggregate limit is now reduced to $500,000.

Toward the end of the policy year, a third covered claim arises with damages totaling $900,000. Although this is below the $1 million per-occurrence limit, the policy’s aggregate limit has only $500,000 remaining. The insurer will only pay the remaining $500,000, and the consulting firm is responsible for covering the outstanding $400,000 because the aggregate limit has been exhausted.

Types of Aggregate Limits

Insurance policies can feature different structures for their aggregate limits. The most common is the General Aggregate Limit, which is a single cap on payments for all claims during the policy period, excluding those related to products-completed operations hazards. This single limit applies to claims arising from any of the insured’s business activities or locations.

In contrast, some policies, particularly in fields like construction, utilize a Per-Project Aggregate Limit. This structure establishes a separate aggregate limit for each specific project or job site. For a contractor with multiple projects, a significant loss at one location could deplete a general aggregate, leaving other operations unprotected. A per-project aggregate isolates the risk, ensuring that a catastrophic event on one job site does not leave the contractor uninsured for claims from their other ongoing projects.

Reinstatement of the Aggregate Limit

The aggregate limit of a liability policy is tied to the policy period. The limit is restored through the policy renewal process. When a policy term ends and is renewed, the aggregate limit is reset to its full original amount for the new term, and claims paid in the previous period do not count against it. This annual reset ensures that a business starts each new policy year with its full coverage capacity intact.

While less common, it is sometimes possible to reinstate an aggregate limit mid-term through a policy provision or endorsement. This feature, known as an aggregate limits reinstatement, allows the limit to be restored after it has been depleted by claims but typically requires an additional premium and can provide an extra layer of security for businesses with high exposure to risks.