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 insureds, claims made, or suits brought
or persons or organizations 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 loss 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.
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.
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
Extending by endorsement a CGL policy beyond a 12-month policy period for
an additional period of less than 12 additional months will not reinstate the aggregate limits if the
policy is extended after issuance. For example, if a 12-month CGL policy was
extended by endorsement 5 months into the policy period to a 21-month policy
period (an additional 9 months), the period to which the aggregate limits apply
is extended to the entire 21 months.
In this situation, it is preferable to either write a 21-month policy period
at policy inception or write the CGL policy to expire on its normal anniversary
date and write a second short-term policy for the 9-month policy term. In either
case, the aggregate limits would apply to the 12-month period and separately to the 9-month period. If a policyholder
has an umbrella policy, the short-term policy option is generally recommended
as umbrella insurers usually require unimpaired aggregate limits (no sums have
been paid or are payable that reduce the aggregate limits prior to the umbrella
policy inception date).
The General Aggregate Limit
This aggregate limit is the most the insurer will pay for all sums as damages
because 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
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.
Some commentators have suggested that the aggregate limits be imagined as
two separate large tanks of water. Piping from each tank flows into smaller
tanks, each of which represents the four other CGL limits. Presume at policy
inception the aggregate tanks are completely full, the other tanks (limits)
Any time a claim is paid, the smaller tank from which the claim is paid must
first draw the water from the larger aggregate tank, reducing the water level
in the aggregate tank. Claims are paid on the policy until the aggregate tank
is empty—in which case the aggregate is exhausted as nothing is left. Any further
attempt to draw from that aggregate tank during the policy period will come
up dry. That is until the policy renews and the aggregate tank is refilled (presuming
renewal CGL insurance is available).
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 personal and advertising injury limit. If the insurer is legally
obligated to pay sums as damages because of personal 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
of out 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.
A food processor improperly prepares a shipment of seafood, resulting in
a contaminated food product that is ultimately sold to the general public. Over
25 people become seriously ill as a direct result of the food contamination
and bring suit against the food processor. Is each illness (bodily injury) suffered
a separate occurrence? Or is the faulty preparation of the seafood, the underlying
cause of the illness, the occurrence?
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 and thus,
in the above example, the faulty food preparation would be deemed to be one
occurrence. The second view focuses on the resulting injury or damages, finding
each injury or damage to be a separate occurrence. In the above example, the
second view may find 25 separate occurrences, requiring the food processor's
CGL insurer to pay up to the each occurrence limit for each person who became
ill, subject to the general aggregate limit.
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
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
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 premises and is a sublimit 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 sublimit
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.
The Water Tank Metaphor
To continue the water tank metaphor, again picture the two aggregate limits
(general aggregate limit and products-completed operations aggregate limit)
as tanks completely full of water at policy inception. Connected by piping to
the general aggregate limit is a separate, empty water tank that is the each
occurrence limit. We will call this connection valve #1. The each occurrence
limit tank has a separate pipe connecting it to the products-completed operations
aggregate limit tank which is connected by valve #2.
If a claim is paid within the products-completed operations hazard, the each
occurrence tank is filled by using valve #2 and drawing down the products-completed
operations aggregate limit tank. Any non-products-completed operations claims
are paid by drawing down the general aggregate limit using valve #1. In either
case, the most that will be paid in any one occurrence is the capacity of the
each occurrence water tank. The personal and advertising injury limit tank is
connected only to the general aggregate limit water tank—any claims paid as
personal and advertising injury will be limited by the capacity of that tank
for any one person or any one organization.
The personal and advertising injury tank is neither connected to the each
occurrence limit tank nor connected to the products-completed operations aggregate
limit tank. Payment of personal and advertising injury claims affect only the
general aggregate limit.
As a sublimit of the each occurrence limit, the Damage to Premises Rented
to You water tank is connected only to the each occurrence limit water tank.
Likewise, the medical expense limit water tank is also connected, by separate
piping, to the each occurrence limit water tank.
In order to pay a claim under either coverage, water must first be drawn
down from the general aggregate limit tank using valve #1 into the each occurrence
limit water tank and then drawn down into the Damage to Premises Rented to You
limit tank for such claims or into the medical expenses limit water tank. Any
claims paid under either coverage reduce the water left in the each occurrence
limit water tank available to pay claims for that same occurrence.
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
An Illustration of CGL Limits of Liability—Nick's Circus, Inc.
The following is a hypothetical illustration of how the CGL policy
limits are to be applied to various claims. The illustration starts
with a fairly typical limit structure for a policyholder, Nick's Circus,
Inc., and demonstrates how the limits apply to the various claims scenarios
presented in the illustration.
|$2,000,000 ||General Aggregate Limit (Other
Than Products-Completed Operations) |
|$2,000,000 ||Products-Completed Operations
Aggregate Limit |
|$1,000,000 ||Personal and Advertising Injury
Limit—Any One Person or Organization |
|$1,000,000 ||each occurrence limit |
|$50,000 ||Coverage for damage to premises
rented to you Limit—Any One Premises |
|$5,000 ||Medical Expense—Any One Person |
Assume the above limits and CGL policy dates
of January 1 to January 1.
- Nick's Circus, Inc. puts on a production in Lincoln, Nebraska.
Unfortunately, the tent Nick's Circus owns and set up for the production
collapsed during a performance on January 15, injuring 15 patrons.
- Ten patrons are willing to settle for having their medical
expenses paid. What is the most Nick's insurer will pay for the ten patrons medical expenses?
$50,000 (10 persons times $5,000
- After settling with the 10 patrons for the maximum medical
expense payable under the policy, two other patrons file complaints,
seeking damages of $5 million each. What is the most Nick's insurer will
pay to defend these two claims?
Defense expense is unlimited under
CGL (until settlement or judgment).
- What is the most the
insurer will pay in total for the injuries to these two patrons
who have filed the complaint, assuming Nick's is found legally
obligated to pay their demands?
$950,000-$1,000,000 each occurrence
limit is reduced by the $50,000 medical expense payment
- Nick's Circus, Inc., moves on to Seattle, Washington and rents
an entire aircraft hangar for 2 months for their next production.
During a rehearsal on March 15, the fire-eater accidentally causes
a fire that does $150,000 of damage to the hangar.
Assuming Nick is found legally obligated (in tort) to pay
for the damage, what is the most that Nick's insurer will pay
for the damage to the hangar?
$50,000—The damage to premises
rented to you Limit
- The fire quickly spreads to a nearby restaurant, injuring two
patrons and damaging the restaurant building.
Nick's Circus is found to be liable for $100,000 of damage
to the restaurant building and $50,000 each for the injuries
to the two restaurant patrons. What is the most that Nick's insurer
will pay for damage to the building and the injuries to the
$200,000-$100,000 for the restaurant
building (the building is not in Nick's custody) and $100,000
total ($50,000 each) for the bodily injury to the patrons. This
payment is still within each occurrence limit.
- Nick's Circus, Inc., decides to change their image and begins
using a new name on July 20, the Grand Apple Circus.
On July 23, The Big Apple Circus files a complaint against
Nick for infringement of trade dress, a personal and advertising
A judgment is awarded against Nick for $100,000 in damages.
What is the most the insurer will pay for this claim?
$100,000—This is a personal and
advertising injury claim that is subject to a $1,000,000 limit
per person or organization.
- In order to improve his flagging image, Nick decides to print
and sell trading cards to the general public with pictures and information
about each of his performers. On August 23, it was found that one
of the cards was so sharp that it cut a buyer's hand, requiring
fifteen stitches and causing the buyer, a world-renowned surgeon,
to miss 3 months of work.
Nick is found legally obligated to pay for these damages
as the card was found to be defective when it left his possession.
The award was $1,200,000. What is the most the insurer will pay
for this claim?
$1,000,000—the each occurrence
- Nick moves on to Worcester, Massachusetts and sets up his tent
for another production. Similar to the January 15 incident, the
tent collapses, injuring six patrons on September 25.
Assuming Nick is legally obligated to pay for their injuries,
what is the most that Nick's insurer will pay in total for the
injuries to the six patrons?
$650,000 is available for this
The general aggregate limit has been reduced
as shown in the following chart.
|1/15 ||$50,000 ||Medical expense ||$50,000 |
|1/15 ||$950,000 ||Bodily injury payment ||$950,000 |
|3/15 ||$50,000 ||Damage to premises rented
to you ||$50,000 |
|3/15 ||$100,000 ||PD to restaurant ||$100,000 |
|3/15 ||$100,000 ||BI—$50,000 to each patron
of restaurant ||$100,000 |
|7/23 ||$100,000 ||Personal and advertising injury ||$100,000 |
|8/23 ||$1,000,000 ||Products-completed operations
bodily injury ||No reduction (only products-completed
operations aggregate is reduced) |
| TOTAL || $2,350,000 || || $1,350,000 |
|9/25 ||$650,000 ||BI to patrons ||General aggregate exhausted
after payment of $650,000 |