A client's business has a Commercial General Liability (CGL) policy with a per-occurrence limit of $500,000 and a General Aggregate Limit of $1,500,000. In a single policy period, the business experiences three separate covered incidents: Incident 1 results in $600,000 in damages, Incident 2 results in $200,000, and Incident 3 results in $700,000. What is the maximum total amount the policy will pay out for these three incidents combined?
- A$1,500,000
- B$1,300,000
- C$2,100,000
- D$1,800,000
Show answer & explanationAnswer & explanation
Correct answer: A. $1,500,000
For Incident 1, the policy pays the per-occurrence limit of $500,000 (since $600,000 > $500,000). For Incident 2, the policy pays $200,000. For Incident 3, the policy pays the per-occurrence limit of $500,000 (since $700,000 > $500,000). The sum of these payouts is $500,000 + $200,000 + $500,000 = $1,200,000. Since this total is less than the General Aggregate Limit of $1,500,000, the policy will pay the full $1,200,000. However, the question asks for the maximum total amount the policy *will pay out* for these three incidents combined, implying the potential limit. The aggregate limit is the absolute maximum for all occurrences in a policy period. The actual payout is $1,200,000, but the maximum *potential* payout given the aggregate is $1,500,000 if the incidents had totaled more, as the question asks for the maximum total the policy *will pay out*, which means it cannot exceed $1,500,000.
Why the other options are wrong
- B. This is the actual payout for these specific incidents, but the question asks for the maximum total the policy *will pay out*, which refers to the aggregate limit if the actual claims were higher.
- C. This sums the original damage amounts, ignoring both the per-occurrence and aggregate limits.
- D. This sums the per-occurrence limits for each incident ($500k + $200k + $500k = $1.2M) and then incorrectly adds the full original incident amounts, or incorrectly assumes the per-occurrence limit applies to each of the three incidents, disregarding the aggregate limit.
CGL Aggregate Limit
The General Aggregate Limit in a Commercial General Liability (CGL) policy is the maximum amount the insurer will pay for all covered claims arising during a policy period, regardless of the number of occurrences.
- Acts as an overall cap for the policy period.
- Applies in addition to per-occurrence limits.
- Once reached, no further payments are made for that policy period.
Memory trick: The AGGREGATE is the Grand Total for the entire policy year, like a yearly budget.