Any person or organization that purchases commercial general liability (CGL)
insurance or anyone who provides advice to those who purchase CGL policies should have a working
knowledge of how the limits of liability of a CGL apply to the payment of claims. This is
important not only in choosing reasonable CGL limits but also in complying with the underlying
requirements of an umbrella or excess liability policy.
Section III—Limits of Liability of the April 2013 edition of the Insurance
Services Office, Inc. (ISO), Commercial General Liability Coverage Form 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, suits brought, or persons or organizations making a claim or
bringing suit. In other words, the limits do not increase simply because a claim or suit names
multiple insureds, the incident involves multiple claims or suits, or numerous persons or
organizations make a claim or file a suit.
To illustrate, 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 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
Six Interrelated Limits
The CGL policy lists on the declarations six different limits. While the
policy lists separately each of the six limits, it is important to recognize that the limits are
all interrelated. That is, a reduction of one limit by the payment of damages will also reduce another limit. More on how this actually works
later in this article. To see how the limits apply to specific claim scenarios, see the
illustration of Nick's Casino, Inc., located at the end of the article.
Two of the most important limits of the CGL policy are the aggregate
limits. An aggregate limit is the most the insurer will pay during the policy period. Once an
insurer pays as damages the full amount of an aggregate limit (payment must be pursuant to a
judgment or settlement), the insurer has no further obligation to any insured for any claims or
suits that fall within the exhausted aggregate limit. This means that, for the remainder of the
CGL policy period, the insurer has no further responsibility to any insured to pay damages for
subsequent claims or suits covered by the CGL policy if those claims or suits fall within the
exhausted 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 fully depleted aggregate limit. An important function of an umbrella or excess policy
is to "drop down" over an exhausted aggregate underlying limit. (See also "Commercial Umbrella Policy—A Few Things To
Consider," January 2016.)
After issuance of a CGL policy, any attempts to extend the policy period by endorsement for an additional
period of less than 12 additional months will adversely
affect the aggregate limits. Any such endorsement will not
reinstate the aggregate limits for the additional period; the same aggregate limit will instead apply to the additional period of coverage.1 For example, extending a CGL policy with an annual policy period by endorsement after issuance for an additional period of 9 months would cause
the aggregate limits to apply to the entire period of 21
months—12 months plus the additional 9 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 CGL policy for the 9-month
additional period. In either case, the aggregate limits would apply to the 12-month period and
then 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 damages have been paid that reduce the
aggregate limits prior to the umbrella policy inception date).
The General Aggregate Limit
The general aggregate limit is the most the insurer will pay for damages
under Coverage A because of bodily injury or property damage and damages under Coverage
B—Personal and Advertising Injury because of an offense and expenses under Coverage C—Medical
Payment. The only circumstances in which the general aggregate limit does not apply is to damages because of bodily injury or
property damage arising out of the products-completed operations
hazard. The definition of products-completed operations hazard is included in the CGL
policy—a separate aggregate limit (the products-completed operations aggregate limit) applies to
payment of damages arising out of products or completed operations claims.
In other words, the general aggregate limit applies to all damages paid under
insuring agreement Coverage A (except damages arising out of
products-completed operations), all damages paid under insuring agreement Coverage B—Personal
and Advertising injury, and all expenses paid under insuring agreement Coverage C—Medical
Products-Completed Operations Aggregate Limit
This aggregate limit is the most the insurer will pay during the policy
period for damages because of bodily injury or property damage and arising out of the
products-completed operations hazard. Stated differently, the products-completed operations
aggregate limit only applies to the payment of damages because of bodily injury and property
damage and then only for claims arising out of the products-completed operations hazard.
As more fully described by its CGL policy definition, products-completed
operations apply only to the following bodily injury or property damage.
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
Arises out of the named insured's work ("your work") that has been
While understanding the CGL policy definitions of "your product" and "your
work" and a grasp of when "your work" is complete is essential to identify the types of claims
that fall within the products-completed operations hazard, the above provides some
The products-completed operations aggregate limit applies
independently of the general aggregate limit. Damages 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 is the sum of the two aggregate limits.
Some have suggested that the aggregate limits may be thought of as two
separate large tanks of water. Piping from each tank flows into smaller tanks, each of which
represents one of the other four CGL policy limits. Presume the aggregate tanks are completely
full at policy inception with the other four tanks (limits) completely empty.
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 in the aggregate
tank. Damages 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—the aggregate limit is exhausted.
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 the personal and advertising injury limit. If the insurer is legally obligated
to pay damages because of personal and advertising injury offenses, the most that the insurer is
required to pay is established by this personal and advertising injury limit.
The personal and advertising limit is independent of the each occurrence
limit applicable to Coverage A—Bodily Injury or Property Damage. Hence, during a policy year,
depending on the circumstances, an insurer may be required to pay both the personal and advertising injury limit and the each occurrence limit.2
The personal and advertising injury limit applies not to each
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 for personal and advertising injury offenses.
Each Occurrence Limit
The each occurrence limit is the most the insurer will be obligated to pay
for all damages paid within Coverage A—Bodily Injury and
Property Damage, including all expenses paid within Coverage
C—Medical Payments. Although a separate products completed operations aggregate limit applies to
the payment of damages because of bodily injury and property damage that arise out of the
products-completed operations hazard, all damages paid under
Coverage A and all expenses paid under Coverage C are
nonetheless subject to the each occurrence limit.
Exactly what constitutes an occurrence has been the subject of colossal
amounts of litigation and even greater debate. Most of the dispute is related to fortuity and
how it relates to insuring agreement of Coverage A—Bodily Injury or Property Damage.3 However, the "occurrence" definition (an accident, including continuous or repeated
exposure to substantially the same general harmful conditions) also has a role that is separate
from fortuity—a role that must be understood to grasp how the each occurrence limit is to
A food processor improperly prepares a shipment of seafood. As a result,
the food processor sells contaminated food to the public. Twenty-five people become seriously
ill as a direct result of the food contamination, all of whom sue the food processor. Is each
illness (bodily injury) suffered a separate occurrence? Alternatively, is the faulty
preparation of the seafood, the underlying cause of the illness, the occurrence? In other
words, are these 25 occurrences or 1 occurrence?
There is a split of legal authority 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 cause of the liability is the occurrence ("cause" test). Thus,
as the cause of the liability is the faulty food preparation,
this would be one occurrence under the "cause" test. The second view focuses on the effect or the resulting injury or damage, finding each injury
or damage to be a separate occurrence ("effect" test). In the above example, the second view or
the "effect" test would find 25 separate occurrences, requiring the food processor's CGL
insurer to pay up to the each occurrence limit 25 times for each person who became ill, subject
to the products-completed operations aggregate limit
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
property 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 to the contents of the premises) if an insured is
legally obligated to pay for the property damage but only if fire caused the property
Neither exception provides coverage if the insured is obligated
to pay solely because the insured has assumed liability for damage in a contract or agreement.
For example, the CGL policy provides no coverage if the insured agreed in a lease of premises
contract to indemnify the owner of the building for any damage to the premises caused by
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 damages paid because
of property damage 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—Medical Payments is a separate insuring agreement that obligates
the insurer to pay reasonable medical expenses (subject to the CGL policy's terms and
conditions) for bodily injury, caused by an accident, without regard to fault. Coverage C 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. As with the
damage to premises rented to you limit, payments made as 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) 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 also has a separate pipe connecting it to
the products-completed operations aggregate limit tank via valve #2.
While the each occurrence tank limit is refilled to capacity for each
occurrence, damages payments will never exceed what is left after using either valve #1 or
valve #2 to drain from the appropriate aggregate limit tank. In either case, the insurer will
never pay more in any one occurrence than the full capacity
of the each occurrence limit water tank, subject to appropriate aggregate limit water tank.
If damages paid under Coverage A do not
arise out of the products-completed operations hazard, the each occurrence limit tank is
filled by using valve #1 and drawing down the general aggregate limit via valve #1. If the
damages paid arise out of the products-completed operations hazard, the each occurrence limit
tank is filled by using valve #2 and drawing down the products-completed operations aggregate
As a sublimit of the each occurrence limit, the damage to premises rented
to you limit water tank is connected only to the each occurrence limit water tank via valve #4.
Likewise, the medical expense limit water tank is connected to the each occurrence limit water
tank via valve #5.
To pay damages under damage to premises rented to you limit or expenses
under the medical expense limit, water must first be drawn down from the general aggregate
limit tank via valve #1 into the each occurrence limit water tank.
The damage to premises rented to you limit tank is refilled for each
premises, but for the same occurrence, draws down the each occurrence limit tank via valve #4
as well as the general aggregate limit via valve #1.
The medical expense limit tank is refilled for each person, but for the
same occurrence, draws down the each occurrence limit tank via valve #5 as well as the general
aggregate limit via valve #1. 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.
The personal and advertising injury limit tank piping is connected only to the general aggregate limit water tank via valve #3 and
draws down only the general aggregate limit for any damages paid. While the personal and
advertising injury limit tank is refilled to capacity by drawing down from the general
aggregate limit via valve #3 each time damages are paid to any one person or organization, the
insurer will never pay more than what is left in the general aggregate limit tank.
In any event, the insurer will never pay more to any one person or organization than the full capacity of the
personal and advertising injury limit water tank, subject only to the general aggregate limit
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.
Therefore, payment of damages for personal and advertising injury offenses affects neither tank
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.5
An Illustration of CGL Limits of Liability—Nick's
The following is a hypothetical illustration of applying the CGL policy
limits to various claims. The illustration starts with a fairly typical limit structure for a
policyholder, Nick's Casino, Inc., and demonstrates how the limits apply to the various
claims scenarios presented in the illustration.
Nick's Casino, Inc., CGL Policy—Limits of Liability
General Aggregate Limit (Other Than Products-Completed
Products-Completed Operations Aggregate Limit
Personal and Advertising Injury Limit—Any One Person or
Each Occurrence Limit
Coverage for Damage to Premises Rented to You Limit—Any One
Medical Expense Limit —Any One Person
Assume the above limits and CGL policy
dates of January 1 to January 1.
1. Nick's Casino, Inc., has
recently purchased and opened a new casino in Iowa. Unfortunately, the roof of the Nick's
building collapsed during a high-stakes blackjack tournament on January 15, injuring 15
a. Ten patrons are willing to settle for having their
medical expenses paid. What is the most Nick's insurer will
pay for the 10 patrons' medical expenses?
$50,000 (10 persons times $5,000 each person)
b. After settling with the 10 patrons for the maximum medical expense
payable under the policy, 2 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 policy (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 legally
obligated to pay their demands?
$950,000–$1,000,000 each occurrence limit is reduced by the $50,000 medical expense payment
(10 persons times $5,000 each person)
2. Nick's Casino, Inc.,
moves his casino to Seattle, Washington, and rents an entire aircraft hangar for 2 months
while searching for a new building. While serving a flaming Baked Alaska on March 15, the
casino's waitstaff accidentally causes a fire that does $150,000 of damage to the
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?
$100,000—the damage to premises rented to you limit
3. The fire
quickly spreads to a nearby restaurant, injuring two patrons and damaging the restaurant
Nick's Casino is 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 patrons?
$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 Casino evicts a high roller from her room at the casino hotel on July 20. On July 23,
the hotel guest files a complaint against Nick for wrongful eviction, a personal and
advertising injury offense.
The guest obtains a judgment against
Nick for $100,000 in damages. What is the most the insurer
will pay for this claim?
is a personal and advertising injury claim that is subject to a $1,000,000 limit for any one
person or organization.
5. To improve foot traffic in the
casino, Nick decides to print and distribute to anyone that enters his casino playing cards
with pictures of his casinos. On August 23, a playing card was so sharp that it cut a buyer's
hand, requiring 15 stitches and causing the buyer, a world-renowned surgeon, to miss 3 months
After a trial, the court enters judgment in favor
of the surgeon, as the card was deemed his product and was defective when it left his
possession. The award of the jury was $1,200,000 in damages. What is the most the insurer will pay for this claim?
$1,000,000—the each occurrence limit
6. Nick opens another casino in Worcester,
Massachusetts, and sets up his tent for a welcome cocktail party. Unfortunately, on September
25, the tent collapses, injuring six guests.
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?
$600,000 is available for this
The general aggregate limit has been reduced, as shown in
the following chart.
Bodily Injury Payment
Damage to Premises Rented to You
Property Damage to Restaurant
Bodily Injury—$50,000 to Each Patron of Restaurant
Personal and Advertising Injury
Products-Completed Operations Bodily Injury
No Reduction (Only Products-Completed Operations Aggregate
Bodily Injury to Patrons
General Aggregate Exhausted after Payment of
Designated Construction Project(s) General Aggregate Limits CG 25 03 and
Designated Location(s) General Aggregate Limits CG 25 04 are two endorsement often used to
increase the general aggregate limit.
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