Six Interrelated Limits
The CGL policy lists on the declarations six different limits. While the limits are separately listed, it is important to recognize that the limits are all interrelated. That is, payment of damages on one limit will also affect another limit. More on how this actually works later in this article.
Section III of the October 2001 edition of the Insurance Services Office, Inc. (ISO), commercial general liability (CGL) insurance policy begins by making it clear that the limits shown in the declarations fix the most the insurer will pay regardless of the number of insured(s), claims made, or suits brought or persons or organiza-tions making claim or bringing suits. (No changes to this section are proposed in the December 2004 edition of the ISO CGL policy). In other words, just because more than one insured person is named in a suit or a claim, more than one person or organization is making a claim or suit, or more than one claim or suit is filed does not mean the limits increase.
To illustrate, let’s say a building contractor accidentally breaks an electrical cable, resulting in loss of utility service to several surrounding businesses. Each business suffering the los of service brings a separate suit against the building contractor for loss of use and damage to inventory that has spoiled. In this illustration, the limit will remain fixed – the fact that there are multiple suits from multiple organizations does not increase the limit shown on the declarations.
Two of the most important limits of the CGL are the aggregate limits. An aggregate limit is the most the insurer will pay during the policy period. Once an insurer is legally obligated to pay the full amount of the aggregate limit (either by judgment or settlement), the insurer has no further obligation to the policyholder during the remainder of the policy period for any subsequent claims or suits that are otherwise covered by the policy and that would be payable under that aggregate limit.
Exhaustion of an aggregate limit also extinguishes an insurer’s duty to defend an insured against any subsequent suits that fall within the depleted aggregate limit. A key role of an umbrella policy is to “drop down” and provide coverage for claims that are not payable under the CGL due to an exhausted aggregate limit.
The General Aggregate Limit
This aggregate limit is the most the insurer will pay for all sums as damages be-cause of bodily injury, property damage, personal and advertising injury except for those sums paid as damages because of bodily injury or property damage included within the products-completed operations hazard. The products-completed operations hazard is defined in the policy and a separate aggregate limit applies to such claims or suits. Included within the general aggregate are damages paid under insuring agreements Coverage C – medical payments and Coverage B – personal and advertising injury.
Products-Completed Operations Aggregate Limit
This aggregate limit is the most the insurer will pay during the policy period for sums as damages because of bodily injury or property damage included within the products-completed operations hazard. As Coverage B – personal and advertising injury claims do not fall within the products-completed operations hazard, this aggregate limit only applies to bodily injury and property damage and then only for claims arising out of specified hazards.
The specified hazards are those described within the definition of products-completed operations hazard and are limited to bodily injury or property damage:
That occurs away from the named insured’s premises and
Arises out of the named insured’s products (“your product”) that are no longer in the named insured’s possession or the named insured’s work (“your work”) that has been completed.
While the definitions of “your product” and “your work” need to be consulted to fully appreciate what falls within the products-completed operations hazard, the above describes in general terms what types of claims fall within this aggregate limit.
The products-completed operations aggregate limit applies independently of the general aggregate limit. Sums paid under the general aggregate limit do not reduce the products-completed operations aggregate limit and vice versa. Consequently, under the CGL policy, an insurer’s total liability or exposure in a policy period policy is the sum of the two aggregate limits.
Personal and Advertising Injury Limit
For the offenses that fall within the definition of personal and advertising injury (and subject to the Coverage B exclusions), a limit is listed on the declarations as person and advertising injury limit. If the insurer is legally obligated to pay sums as damages because of persona and advertising injury offenses, the most that the insurer is required to pay is set by this limit.
This limit is independent of the each occurrence limit. Hence, it is possible that an insurer may be required to pay both the personal and advertising injury limit and each occurrence limit.
The personal and advertising injury limit applies not by offense, but separately to each person or organization that sustains damages because of a covered offense or offenses. However, regardless of the number of persons or organizations claiming damages from a covered offense, or regardless of the number of offenses claimed during the policy period, the insurer is obligated to pay no more than the general aggregate limit.
Each Occurrence Limit
This limit is the most the insurer must pay for the sum of all damages under Coverage A – bodily injury and property damage and Coverage C – medical payments. Although a separate aggregate limit applies to products-completed operations claims and those claims for bodily injury and property damage that do not arise out of the products-completed operations hazard, the each occurrence limit does apply to all sums paid under Coverage A.
Exactly what constitutes an occurrence has been the subject of massive amounts of litigation and even more extensive debate. Most of the dispute is related to fortuity and how it relates to insuring agreement of Coverage A – bodily injury or property damage. However, the “occurrence” definition (an accident, including continuous or repeated exposure to substantially the same general harmful conditions) also must be understood to grasp how the each occurrence limit is to apply.
Legal authority is split on this issue. Further, slight variations in the facts of the case may result in different outcomes. The general trend, however, is for the courts to take one of two views. The first view is that underlying cause which directly resulted in the bodily injury or property damage is considered the occurrence.
It should also be noted that the number of occurrences is likely to be determined in the same manner when applying a “per occurrence” deductible included on a CGL policy.
Damage to Premises Rented to You Limit
Coverage for Damage to Premises Rented to You is not provided by a specific coverage grant but rather by exceptions to certain exclusions found in Coverage A – bodily injury and property damage. The first exception provides coverage for property damage to premises, including the contents of the premises, rented to the named insured for 7 or fewer consecutive days if an insured is legally obligated to pay for such damage due to any cause except fire.
The second exception, formerly known as fire damage legal liability, provides coverage for damage only to the premises (not the contents of the premises) if an insured is legally obligated to pay for the property damage, but only if the damage is caused by fire. Any legal liability imposed on an insured must arise out of tort and not contract for either exception (and thus the coverage) to apply. In other words, if an insured is held liable solely due to an agreement to be responsible for the property or for damage to the property, there is no coverage.
The coverage granted by the exceptions noted above is subject to the Damage to Premises Rented to You limit listed on the declarations. The limit applies to any one premise and is a sub-limit of the each occurrence limit. Therefore, any property damage paid under the Damage to Premises Rented to You limit will reduce the each occurrence limit for that same occurrence and will also reduce the general aggregate limit.
Medical Expense Limit
Coverage C is a separate insuring agreement that obligates the insurer to pay reasonable medical expenses (subject to the CGL terms and conditions) for bodily injury, caused by an accident, without regard to fault. Coverage C – medical payments is subject to the medical expense limit listed on the declarations. The medical expense limit applies separately to each person, but is a sub-limit of the each occurrence limit and, as with the damage to premises rented to you limit, payments made under medical payments will reduce the each occurrence limit for that same occurrence and will also reduce the general aggregate limit.
Aggregate Limit Endorsements
The general aggregate limits can be amended to apply separately to designated locations or to designated projects. Depending on the number of locations or projects designated, these endorsements can greatly reduce the likelihood that a policyholder’s general aggregate limit will be exhausted during the policy period.