What it means
Every liability and property policy contains at least two ceilings. The per occurrence limit applies to one event, and the aggregate limit applies to everything the policy pays across the period, so a policy described as $1,000,000 per occurrence and $2,000,000 aggregate will pay at most $1,000,000 for one incident and $2,000,000 in total for the year.
The number matters because losses are not evenly distributed. Most claims are small and comfortably inside the limit, but the claims that threaten a company's survival are exactly the ones that exceed it, so a limit chosen for cost reasons can leave the biggest risk uninsured.
Deciding what counts as one occurrence is where disputes arise. If a faulty component is fitted to 400 vehicles, is that one occurrence because there was one manufacturing error, or 400 occurrences because there were 400 damaged vehicles?
The policy wording usually defines occurrence to include continuous or repeated exposure to substantially the same conditions, but the interpretation still ends up in argument. In practice, businesses handle inadequate limits by buying excess or umbrella cover, which sits above the primary policy and responds once the primary limit is exhausted.
A company might hold $1,000,000 of primary cover with a further $5,000,000 of umbrella cover behind it, giving effective protection of $6,000,000 for a single event. One more nuance is worth knowing.
The deductible is paid by the business before the insurer contributes, and in most policies the per occurrence limit applies to the insurer's payment rather than the total loss, so the business can end up paying both the deductible and everything above the limit.
In practice
Real-world examples.
Example
A commercial cleaning company carries $500,000 per occurrence cover and floods a client's server room, causing $900,000 of damage. The insurer pays its limit and the cleaning company negotiates a payment plan with the client for the remaining $400,000, which consumes two years of profit.
Example
A software firm signs an enterprise contract requiring $2,000,000 per occurrence in professional indemnity cover, double what it holds. Rather than replace the whole policy, its broker arranges an excess layer that sits above the existing $1,000,000 primary limit at a modest additional premium.
Example
A construction contractor suffers three separate site incidents in one year, each settling at $700,000. Every claim is within the $1,000,000 per occurrence limit, but the third one breaches the $2,000,000 aggregate, leaving the contractor to fund $100,000 itself.
Think of it
“Per occurrence limit is the cap for any single event-maximum per incident.
Formula
Calculation
Insurer Pays = Minimum of (Loss - Deductible) and the Per Occurrence Limit
A distribution business holds a general liability policy with a per occurrence limit of $1,000,000, an aggregate limit of $2,000,000 and a deductible of $25,000. A warehouse incident results in a settled claim of $1,400,000.
First, subtract the deductible: $1,400,000 - $25,000 = $1,375,000. That figure exceeds the per occurrence limit, so the insurer pays the lower of the two, which is $1,000,000. The business pays the $25,000 deductible plus the $375,000 that sits above the limit, a total of $400,000 out of its own funds. Adding it back confirms the arithmetic: $1,000,000 from the insurer plus $400,000 from the business equals the $1,400,000 claim.Case study
Seen in the real world.
Halden Foods is a fictional regional food manufacturer used here as an illustrative example. It carried product liability cover with a per occurrence limit of $1,000,000 and an aggregate of $3,000,000, limits chosen years earlier when the business was a third of its current size.
A packaging fault led to a national recall affecting eleven retail customers. Halden argued that each retailer's claim was a separate occurrence, which would have given access to the full aggregate limit, while the insurer treated the single packaging fault as one occurrence capped at $1,000,000. The dispute took nine months and settled between the two positions.
The illustrative lesson the fictional board took away was that limits should be reviewed against current turnover and customer concentration every year, and that the definition of occurrence in the policy wording deserved as much attention as the headline limit printed on the schedule.
Watch out
Common mistakes.
- Reading the aggregate limit as the amount available for a single large claim, when the per occurrence limit is what actually caps one event.
- Leaving limits unchanged for years while revenue, contract sizes and customer numbers grow, so cover quietly becomes inadequate.
- Forgetting that defence costs may erode the limit in some policies, leaving less than expected to pay the claim itself.
Questions
People also ask.
What is the difference between per occurrence and per claim?
Per occurrence relates to one incident, which may generate several claims, while a per claim limit applies to each individual claim, so the same event can be treated very differently.
Does the deductible count towards the per occurrence limit?
Usually not, since the limit caps what the insurer pays after the deductible has been met, meaning the business's total outlay can exceed the deductible alone.
How do you choose the right limit?
By looking at the largest plausible single loss for your activities, contractual requirements from customers, and the cost of excess layers, which are often far cheaper per dollar of cover than the primary policy.
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