What it means
Liability policies almost always carry two ceilings. The per-occurrence limit is the most payable for one incident, and the aggregate limit is the most payable for everything added together during the period.
A policy described as "$1,000,000 per occurrence, $2,000,000 aggregate" means one claim can draw at most $1,000,000 and all claims together can draw at most $2,000,000. This matters because a business can be fully covered on paper and still end up uninsured in practice.
Two large claims early in the year can consume the entire aggregate, leaving nine months with no effective liability protection at all. Nothing warns you except your own tracking of claims paid.
Aggregates can apply in several ways. Some policies apply one aggregate across all coverages, some apply separate aggregates to each coverage part, and construction policies frequently include a per-project aggregate so that work on one site cannot erode the protection available on another.
Reading which structure applies is essential when a contract requires you to maintain minimum cover. Defence costs are the most commonly missed detail.
In many professional and management liability policies, legal defence costs erode the aggregate rather than sitting outside it, so a series of defended claims that all end in your favour can still consume most of the limit. Policies where defence costs sit outside the limit cost more for exactly this reason.
When the aggregate is close to exhaustion, a business has options but they are not cheap. Reinstatement of the limit can sometimes be purchased mid-term, or an excess layer can be bought to sit above the primary policy, but both are priced with full knowledge of the claims already made.
In practice
Real-world examples.
Example
A civil engineering firm wins a contract requiring $5,000,000 of liability cover to be maintained throughout the works. Its policy has a $5,000,000 aggregate that has already been reduced by $1,800,000 of earlier claims, so it buys a project-specific policy to satisfy the contract.
Example
An accountancy practice defends three professional negligence claims in one year and wins all three. Because defence costs erode the aggregate under its policy, roughly $640,000 of its $1,000,000 limit is consumed despite no damages ever being paid.
Example
A franchisor discovers its master policy applies one aggregate across all 60 franchise locations. After two significant claims at a single site, the remaining cover for the other 59 locations is materially reduced, and it restructures to per-location aggregates at renewal.
Formula
Calculation
Remaining aggregate = aggregate limit - claims paid to date, and the insurer's payment on any claim is the lower of the claim amount, the per-occurrence limit and the remaining aggregate.
A property maintenance company holds a general liability policy with a $1,000,000 per-occurrence limit and a $2,000,000 aggregate limit. In February a claim settles at $600,000, which is under the per-occurrence limit, so the insurer pays it in full. Remaining aggregate is $2,000,000 - $600,000 = $1,400,000.
In May a second claim settles at $850,000, again under the per-occurrence cap. The insurer pays it, and remaining aggregate becomes $1,400,000 - $850,000 = $550,000, having now paid $600,000 + $850,000 = $1,450,000 in total.
In October a third claim settles at $900,000. It is within the per-occurrence limit, but only $550,000 of aggregate remains, so the insurer pays $550,000 and the company funds $900,000 - $550,000 = $350,000 from its own resources. The policy is now exhausted, and any claim arising in November or December is uninsured until renewal.Case study
Seen in the real world.
Larkfield Grounds Services is a fictional, illustrative landscaping contractor working across parks, schools and commercial estates. It carried a general liability policy with a $1,000,000 per-occurrence limit and a $2,000,000 aggregate, which the directors had always described in board meetings as two million of cover.
A mower struck a buried cable in March, causing a power outage that led to a claim settling at $780,000. In July a tree fall damaged three vehicles and injured a passer-by, settling at $920,000. Between them these took $780,000 + $920,000 = $1,700,000 of the aggregate, leaving $300,000 for the remaining five months of the policy year.
Nobody had been tracking the running total, and the finance director only discovered the position when the broker mentioned it during renewal preparation. Larkfield bought an excess layer at a heavily loaded price for the balance of the year and, in this illustrative example, introduced a simple monthly report showing claims paid, claims reserved and remaining aggregate so the exposure could never again be a surprise.
Watch out
Common mistakes.
- Assuming the per-occurrence limit is the real measure of protection. The aggregate is what determines whether cover still exists after a bad run of claims.
- Forgetting that defence costs may erode the aggregate. In many professional liability policies, winning every case can still leave the limit substantially reduced.
- Never tracking how much aggregate remains. Insurers are not obliged to warn you, and businesses regularly discover the position only when a claim is declined.
Questions
People also ask.
Does the aggregate limit reset each year?
Yes, it applies per policy period and starts fresh at renewal, which is why claims timing near a renewal date can matter a great deal.
What happens once the aggregate is exhausted?
The policy pays nothing further, and every subsequent claim in that period is funded entirely by the business unless an excess layer or reinstatement exists.
Can the aggregate limit be reinstated mid-year?
Sometimes, either through a pre-agreed reinstatement provision or by buying additional cover, though the price will reflect the claims already made.
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