Commercial general liability limits refer to the maximum amount of money an insurance company will pay out on a policy per policy period. The limits are defined in the policy and are listed on the declarations page. Understanding these limits is important for ensuring that you have enough coverage in any given area and are adequately insured against risk.
There are six defined liability limits in a general liability policy:
1. Per occurrence
2. General aggregate
3. Product-completed operations
4. Personal and advertising injury
5. Damage to premises rented to you
6. Medical expense
1. Per Occurrence
The occurrence limit, sometimes written as “per occurrence” in a policy, is the maximum amount that an insurance carrier will pay for any one claim. This is spelled out on the declarations page of your insurance policy.
Typically, the per-occurrence limit is half of the general aggregate limit. This means that if the general aggregate limit is $2 million, the per-occurrence limit will be $1 million. Every insurance carrier and policy are different, so be sure to understand what your policy sets as the limit. There are times when the per-occurrence limit is equal to the aggregate limit, greatly restricting the number of covered incidents that a policy will pay on.
The per-occurrence limit will reduce the amount of the aggregate limit by the claim amount whenever there is a loss.
Per Occurrence Example
Assume you have a policy with a $1 million per-occurrence limit and a $2 million general aggregate limit. If there is a claim valued at $1.1 million, then the insurance would pay the $1 million based on the occurrence and the business is likely liable for the difference of $100,000. The remaining amount left for the policy period then drops from $2 million to $1 million because of the amount used.
2. General Aggregate
The general aggregate limit is the maximum amount that an insurance policy will pay for claims during a covered period of time. The coverage of a commercial general liability policy (CGL) is broken down into different sections. The general aggregate limit applies to:
- Coverage A: Bodily injury or property damage
- Coverage B: Personal and advertising injury
- Coverage C: Medical payments
The general aggregate limit applies to one large claim or a series of smaller claims tallying up to the limit. Once all claims in the policy term meet the aggregate limit, no other funds will be paid by the insurance carrier for claims—so any resulting claims are the responsibility of the business.
Another way of thinking of it is, if you hit the aggregate limit on your general liability policy, then functionally, your business no longer has insurance because the carrier will not pay anymore out under that coverage during the remainder of the policy period.
This limit does not apply to claims arising from products-completed operation hazards, which often have its own separate limit.
General Aggregate Example
Assume that you have an insurance policy with $1 million in each occurrence limit and a $2 million general aggregate limit. Imagine that you have three claims in the year, each for $800,000. That’s a total of $2.4 million in claims. If your aggregate limit is only $2 million, you will be liable for the additional $400,000 should the claimant win their case.
3. Product-completed Operations
Included in general liability limits are the product-completed operations limit. This limit sets the maximum amount that will be paid based on liabilities from work completed or made products. For this coverage limit to be triggered, the loss must occur away from the business operations.
Helpfully, this limit does not affect the general aggregate limit and stands on its own. So, it is possible to have claims meeting the general aggregate limit plus a product-completed operations limit on top of that.
Product-completed Operations Example
Say that a general contractor has a general liability policy that has a $2 million general aggregate limit plus $1 million for product-completed operations. If a staircase that the contractor built fails, leading to $800,000 in injuries for the event, then the product-completed operations limit would cover this—with $200,000 in claims to spare. The general aggregate limit would remain at $2 million, being unaffected by this claim.
4. Personal & Advertising Injury
Personal and advertising injury refers to things like libel or slander that someone accuses you of. This coverage has its own occurrence limit unaffected by the general per-occurrence limit.
The personal and advertising injury limit applies to each affected claimant, not the entire occurrence. So, if more than one person was deemed injured from an incident, each person would be able to receive compensation based on the limit for this coverage. However, it diminishes the general aggregate limit when a claim is made.
Personal & Advertising Injury Example
Your general liability policy has an aggregate limit of $2 million with a personal and advertising injury limit of $500,000. On a Facebook post, you disparage a competitor’s services, and the comment goes viral.
The competitor loses business because of the post and claims that your assertion is wrong, and your business is sued for libel for $300,000. The personal and advertising injury limit pays to defend you in this claim, and the aggregate limit goes down by $300,000 for the year.
5. Damage to Premises Rented to You
Many business owners rent commercial space and are required to obtain liability insurance. Often, this coverage requirement is a minimum of $1 million per event, with each event counting toward the general aggregate. It is not the same as the per-occurrence limit, though these two often have matching limits of $1 million.
This coverage limit is triggered when there is damage incurred. Damage is often incurred by fire, but claims for vandalism, burst pipes, and other perils resulting in damage to the leased building are covered.
Damage to Premises Rented to You Example
Assume you have a policy with a $2 million general aggregate and $1 million for coverage limits on damage to premises rented to you. There is a small fire that erupts when a microwave catches fire in the break room. The sprinklers go off, and the fire department arrives to make sure the fire is out.
The damage to the walls, floor, and ceiling is paid for by the coverage for damage to premises rented to you. If this amount is $300,000, then you reduce the annual aggregate amount to $1.7 million. If any of your contents are damaged, this would be paid out under a separate property policy and not the general liability policy.
6. Medical Expense
While a medical expense is included in general liability insurance coverage limits, this is considered no-fault insurance and covers medical bills and first aid to those who obtain bodily injury while on-premises. It covers reasonable expenses subject to the medical expenses limit on the policy. When a claim occurs, the aggregate limit is diminished by the claim amount.
Medical Expense Example
Assume that you have a general aggregate limit of $2 million with a medical expense limit of $1 million. An elderly person slips and falls in your establishment and requires an ambulance, as they broke their hip. Your insurance will pay the cost of the transportation plus any medical bills incurred from the fall up to the $1 million in the policy limit. The aggregate limit is reduced by the claim amount as well.
Frequently Asked Questions (FAQs)
General liability insurance is one of the most common and broadest types of liability insurance for small businesses. Standard CGL policies cover third-party claims of bodily injury, property damage, or personal and advertising injury. You can learn more about it in our deep dive into general liability insurance.
Broadly speaking, general liability is not required. However, localities may require it to get licensed for a specific trade. Many event venues will require general liability to rent a space, and construction projects will require proof of general liability insurance to bid on a project.
A number of factors go into CGL cost, including the risk of the industry. A handyperson can pay anywhere from $575 to $2,000 annually, while a photographer may pay $200 to $800 annually.
A great way to find cheap general liability insurance is to work either with a broker so that you can compare quotes or a provider who offers discounts. To get started with saving money, check out our guide to the cheapest general liability insurance companies.
Most standard general liability insurance coverage limits are $1 million per occurrence and a $2 million aggregate limit. However, if you are in a riskier industry, then you may want to increase the limits. To ensure you have the right amount, reach out to your agent to review your policy and any known risk exposures.
If a claim cannot be resolved within the general liability insurance coverage limits of the policy, your business may end up paying the unresolved difference. However, insurance companies will work to do everything they can to resolve a claim within the limits of the policy.
Bottom Line
Understanding when general liability insurance is required and what the policy limits are help you ensure that you are properly protected against various risks. Review the coverage with your agent and increase it where you think you have the most exposure. Remember that when a claim exceeds the limits, your business (and you) could be held responsible for the difference.
If you’re looking for general liability insurance, Simply Business is an online broker that can offer tailored quotes in real time from multiple providers. You can compare coverage and cost and then purchase a policy online or by calling to speak with an agent. Get a free quote today.
