Policy limits and aggregates

A liability policy can show a limit for one occurrence and another limit for all covered claims combined. The first controls the maximum for a single covered event. The aggregate sets a broader cap across multiple events or claim payments during the policy period or another defined unit. A claim can fit under the first limit yet still be affected by the remaining aggregate. The declarations, coverage form, endorsements, and limits section must be read together.

Per-occurrence limit: the ceiling for one event

A per-occurrence limit is the maximum the insurer will pay for covered damages arising from one occurrence, subject to the contract. 'Occurrence' is a policy term. It may refer to an accident, including continuous or repeated exposure to substantially the same general harmful conditions, depending on the applicable wording. How many occurrences a chain of events creates can be disputed, so a licensing question normally gives a clear definition or simple facts.

Suppose an illustrative liability policy has a $1,000,000 each-occurrence limit. A customer is injured in one fall at the insured business, and the covered damages are $700,000. If no other limit, deductible, self-insured retention, or exclusion changes the calculation, the occurrence limit is high enough for that amount. If covered damages from that occurrence are $1,400,000, the insurer's payment for that occurrence cannot exceed the applicable limit, subject to how defense costs and other payments are treated by the contract.

The number applies to the policy's defined unit. It is not necessarily a limit for every injured person. For example, a business auto policy may show bodily-injury limits per person and per accident, while a commercial general liability form often states a per-occurrence limit for bodily injury and property damage together. Do not assume the same limit structure across auto, homeowners, CGL, professional liability, or workers' compensation coverage.

Aggregate limit: a cap across multiple losses

An aggregate is the maximum the policy will pay across a specified group of claims or coverages during the stated period, often the policy year. It can be a general aggregate or a separate aggregate for products and completed operations. The wording defines what payments count, when the aggregate is reduced, and whether it applies per policy, project, or location. A certificate may display these limits, but the certificate itself is not the insurance contract.

Imagine a policy with an illustrative $1,000,000 each-occurrence limit and $2,000,000 general aggregate. Two separate covered occurrences each produce $700,000 in covered damages. Each loss is below the occurrence limit. If both reduce the general aggregate, the aggregate has $600,000 remaining before considering defense-cost treatment or other policy payments. A third occurrence could therefore be limited by the remaining aggregate even though its damages are below $1,000,000.

Why the aggregate may be exhausted before the policy expires

An aggregate is a cumulative ceiling, not a promise that the full per-occurrence amount will be available for every event all year. If several claims consume the aggregate, the available balance falls. The policy may specify whether the aggregate resets annually, applies separately by project or location, or includes certain expenses. Some forms permit an endorsement that changes how aggregate limits apply. A broker or producer should never infer the answer from a summary table alone.

Consider a contractor whose CGL policy has an aggregate that applies per project. The contractor works on two separately scheduled projects. The forms and endorsements determine whether each project has its own aggregate or both projects share one. If the policy says the aggregate applies per project and the endorsement is effective, a claim charged to project A may not reduce project B's separate pool. If the policy applies the limit per policy, the same payments may erode a common pool. The schedule and wording matter.

General aggregate and products-completed operations aggregate

Commercial general liability declarations commonly distinguish a general aggregate from a products-completed operations aggregate. Products and completed work can create claims after a product has been sold or work has been finished. The separate aggregate recognizes this category and can give it a distinct cap. The exact definitions of 'your product' and 'your work,' and the conditions for a completed operation, come from the policy form and endorsements.

A restaurant guest is hurt by a condition on the business premises. That may implicate premises/operations coverage. A customer is injured months later by a product the insured manufactured or served, or by completed work after the insured has left the jobsite. That may point toward products/completed operations, subject to the policy's definitions, exclusions, and facts. The claim label alone does not decide which aggregate applies; read the form and determine whether the injury or damage falls within the defined coverage category.

TDI's commercial general liability guidance separates premises/operations coverage from products/completed operations coverage and describes the latter as covering bodily injury or property damage away from the business premises caused by the insured's products or completed work. That is a helpful orientation, but a specific CGL form may define these terms more precisely. Use the form in the question when one is supplied.

Defense costs may or may not reduce the limit

A limit-of-liability question may include defense expenses. Some policies provide defense outside the limit; others can make defense costs erode the amount available for indemnity. The wording may distinguish damages, claim expenses, supplementary payments, and defense costs. A standard CGL coverage form may treat certain defense and supplementary payments separately from the limit, while a surplus-lines or specialized policy may use different terms. TDI cautions that defense costs could be included within limits for certain surplus-lines placements.

For an exam calculation, do not subtract attorney fees from an occurrence limit unless the question or policy states that defense costs are inside it. If the form says defense is outside the limits, the insurer may pay defense costs in addition to covered damages up to the applicable limit. If the form says defense is within the limit, amounts spent defending the claim reduce what remains to pay a settlement or judgment. 'Duty to defend' and 'limit of liability' are related but separate concepts.

Sublimits: special caps inside or alongside broader limits

A policy can set a lower limit for a particular type of property, cause, expense, or liability. That is commonly called a sublimit. It might apply to jewelry theft under a homeowners form, water backup, damage to rented premises under a CGL form, or a specific catastrophe extension. Whether the sublimit is included within a broader limit or adds to it depends on the policy language. Never add limits together simply because they appear on the same declarations page.

A $5,000 special limit for a category of contents does not necessarily mean the insured gets $5,000 on top of the personal-property limit. It may be the maximum payable for the category, subject to the broader contents limit and deductible. Likewise, a 'per person' medical-payments limit does not automatically increase a separate bodily-injury occurrence limit. The coverage part and limit clause explain how each amount interacts.

Split limits versus combined single limits

Auto liability often illustrates split limits. A declaration might set one maximum for bodily injury to one person, another maximum for all bodily injury in one accident, and a third for property damage. A combined single limit instead provides one total cap for bodily injury and property damage arising from the covered accident, subject to the policy. The same facts can produce different maximum payments under different structures.

Suppose a split-limit auto policy states $50,000 bodily injury per person, $100,000 bodily injury per accident, and $25,000 property damage per accident. One person has $60,000 of covered bodily injury damages and another has $30,000. The per-person cap limits what can be paid for the first person; the per-accident bodily-injury cap also constrains the combined bodily-injury payment. Covered damage to another vehicle is subject to the separate property-damage cap. These figures are illustrative. State minimum limits, policy choices, and contract details vary.

Excess and umbrella limits

Excess liability insurance can provide additional limits above an underlying policy when its terms are met. An umbrella policy is also a form of excess insurance, but it may cover some exposures beyond the underlying policies if its own insuring agreement includes them and no exclusion removes them. Neither product automatically doubles every limit. The excess or umbrella contract states which underlying policies must be in place, how attachment works, and what happens if the underlying aggregate has been partly or fully exhausted.

If a covered loss is $1,400,000, a primary policy has a $1,000,000 applicable limit, and an umbrella has a $2,000,000 limit attaching above that primary policy, the remaining covered amount may be considered under the umbrella. But the facts must satisfy both policies, and the attachment point, retention, exclusions, and exhaustion wording control. If the claim is excluded by the umbrella or a required underlying policy is missing, the higher number on the umbrella declaration does not guarantee payment.

A limit is not the same as a deductible or a valuation

A deductible is the insured's share of a covered loss under the contract. A limit is the insurer's maximum responsibility. A valuation term such as actual cash value or replacement cost determines how property damage is measured. These concepts can appear in one calculation, but they answer different questions. First establish coverage and the value of the covered damage. Then apply the deductible, any applicable sublimit, and the policy limit in the order the contract specifies.

A policy limit is also not the amount automatically paid for every claim. If the covered loss is lower than the limit, the payment may be less because of the loss amount, deductible, coinsurance, another limit, or a policy condition. If the loss is greater than the limit, the contract caps the insurer's payment. A claim may be denied entirely if no coverage applies, even when the declarations show a large limit.

How to read a limits page

1. Identify the coverage part and the type of claim. Do not use a property limit for a liability claim or vice versa.
2. Find the limit that applies to one person, accident, occurrence, claim, location, or item.
3. Find the applicable aggregate and identify which payments erode it.
4. Check for a separate products/completed-operations aggregate or a sublimit.
5. Read whether defense costs and supplementary payments are inside or outside the limit.
6. Check any deductible, self-insured retention, excess layer, or umbrella attachment.
7. Use the policy's definitions of occurrence, claim, product, completed work, and policy period.

Common exam traps

• Applying the general aggregate as though it were the maximum for each occurrence. The per-occurrence limit and aggregate are different caps.
• Assuming a fresh per-occurrence limit is available for every claim after the aggregate is exhausted.
• Combining bodily-injury and property-damage split limits when the declarations assign separate caps.
• Treating a products/completed-operations aggregate as interchangeable with the general aggregate.
• Subtracting defense costs without checking whether the form places them inside the limit.
• Adding a sublimit to a broader limit without confirming whether it is included in or in addition to that limit.
• Assuming an umbrella automatically covers every loss above the primary policy. The umbrella's own terms and attachment point control.
• Confusing a limit with the amount of the actual covered loss, a deductible, or a valuation basis.

The shortest reliable rule is: per occurrence caps one event; the aggregate caps a defined pool of payments; a sublimit caps a narrower category. The policy tells you which pool applies and how it is reduced. Identify the claim, the specific limit, the aggregate, and any defense-cost or deductible terms before calculating what remains.

Study Texas P&C limits with practice scenarios

Limits questions become manageable when you draw a box around each occurrence and a second box around the remaining aggregate. The Texas Property and Casualty exam course pairs the exam concepts with study and practice materials.