The Aggregate Limit and the Second Injury
A small manufacturer carries a commercial general liability policy with a $1,000,000 each-occurrence limit, a $2,000,000 general aggregate, and a $2,000,000 products-completed operations aggregate. In March, a customer is injured at the plant when a hoist fails, and the insurer pays $700,000 to settle. In August, a batch of the manufacturer's components fails in a customer's product, injuring a worker; the claim is expected to cost $1,200,000. The policy period runs January 1 to December 31, and the products claim is reported in November. The insured asks whether both claims are covered and how the limits apply.
1. Explain how the limits apply to the two claims.
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The March premises injury is a general liability occurrence and reduces both the each-occurrence limit (by $700,000) and the general aggregate (to $1,300,000 remaining). The August products claim falls under the products-completed operations aggregate, which is separate from the general aggregate and still has $2,000,000 available. The $1,200,000 products claim is within the each-occurrence limit and within the products aggregate, so it is covered in full, subject to deductible and any applicable self-insured retention. The general aggregate does not absorb the products claim.
2. What if the products claim had been $2,400,000?
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The each-occurrence limit of $1,000,000 caps the insurer's payment for that occurrence, leaving $1,400,000 of the claim above the limit for the insured to bear (subject to any other insurance). The products aggregate would be reduced by the $1,000,000 paid, leaving $1,000,000 for later products claims in the policy period. The insured should consider whether umbrella coverage applies and whether the claim can be allocated across multiple policy years if the injury or exposure spans periods.