Risk & Business Magazine JGS Insurance Magazine Fall 2019 | Page 28

COMMERICAL GENERAL LIABILITY
LET’S TALK LIMITS:
How Are The Six CGL Limits Related?
A
ny organization that
purchases Commercial
General Liability (CGL)
insurance should have a good
understanding of how limits
of liability apply to claim payments in the
policy. That information not only helps
organizations choose what the best limits
are for their policy, but it also helps them
understand the requirements for umbrella
or excess liability policies.
People often speak about General Liability
as if it is one coverage. General Liability is
really a broad term that refers to a package
of coverages and coverage limits. These
coverages and how they work are often
misunderstood. On the most basic level,
the CGL policy covers against lawsuits
alleging bodily injury, personal injury, and
property damage due to negligence.
A CGL policy has six different limits
shown on the declarations page. While
those limits are individual, they are also
interrelated. What does that mean? Simple:
a reduction due to a payment on one limit
will reduce other limits as well. There
is one caveat: after issuance of a CGL
policy, any attempts to extend the policy
period through an endorsement for less
than 12 months has an adverse effect on
the aggregate limits. It is better to write a
longer policy period into the CGL policy at
inception than to extend it in most cases.
Two of the six limits are Aggregate Limits
and are related. Aggregate Limit means
that it is the most an insurer will pay
during a policy period. Once the insurer
has paid the full amount of the Aggregate
Limit, the insurer has no further obligation
to pay the insured for any claims or suits
that fall within the exhausted aggregate
limits. Hence, an umbrella or excess
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liability policy aims to drop down over an
exhausted aggregate underlying limit.
As we go through the limits, it may get
confusing. To help illustrate the concept,
imagine two large water tanks at full
capacity as Aggregate Limits (at the
beginning of the policy period) and four
smaller, unfilled water tanks for the
other CGL limits. Each small water tank
is connected respectively to its own large
water tank. When claims are paid from
the smaller tanks, it draws water from
the larger Aggregate tanks, reducing the
water from the Aggregate tanks until they
are empty. Once the large water tanks are
empty, it means the Aggregate Limits are
exhausted.
THE GENERAL AGGREGATE LIMIT
The General Aggregate Limit is the most
the insurance company will pay in any
one policy year for claims arising out of
your organization’s operations: Bodily
Injury and Property Damage (Coverage A),
Personal and Advertising Injury (Coverage
B), and Medical Payments (Coverage C).
To be a bit more specific, the Products-
Completed Operations Limit only applies
to the following cases of property damage
or bodily injury:
• Incident occurred away from the
premises of the named insured, and
• Arose due to products of the named
insured that are no longer in the
possession of the named insured, or
• Arose due to work that was completed
by the named insured.
PERSONAL AND ADVERTISING INJURY
LIMIT
Personal Injury refers to slander, libel,
invasion of privacy, and defamation of
character. Advertising Injury refers to
false advertising practices. This coverage
provides protection from suits related to
any of these offenses. The most the insurer
is required to pay is established in this
Personal and Advertising Injury Limit.
There are a couple of things to know about
this limit:
1. It is independent of the Each
Occurrence Limit in Coverage A
(Bodily Injury and Property Damage);
however, an insurer may be required
to pay both the Personal and
Advertising Injury Limit and Each
Occurrence Limit.
2. It is applied not to each offense
but to each person or organization.
Regardless of the number of persons
or organizations claiming damages,
the most the insurer is required to pay
is the Personal and Advertising Injury
Limit.
PRODUCTS-COMPLETED OPERATIONS
AGGREGATE LIMIT
This aggregate limit indicates how much
an insurer will pay for damages because of
bodily injury or property damage resulting
from the Products-Completed operations
hazard. The Products-Completed
Operations Aggregate is separate from the
General Aggregate Limit. Payments for
damages out of the Products-Completed
Operations Limit does not affect the
General Aggregate limit and vice versa.
Under the CGL policy, the total liability
exposure for the insurer is the sum of the
two aggregate limits.