Exhausting the Aggregate on Six Claimants and a Patio Heater
Harborlight Retail Group operates a single home-and-garden store. Its CG 00 01 runs 1 January to 31 December with limits of $1M each occurrence, $2M general aggregate, $2M products-completed operations aggregate, Coverage C medical expense of $5,000 each person / $25,000 each accident, and a $10,000 per-occurrence deductible applicable to damages, with the Limits of Insurance applying to the amount of loss in excess of the deductible. Defense costs are outside the limits and do not reduce the aggregates.
On 14 March a pergola display at the store entrance collapses onto the sidewalk, injuring five shoppers and crushing two parked cars. The insurer settles the five bodily injury claims for $980,000 total and the two property damage claims for $70,000, and incurs $215,000 in defense costs. On 2 August a shopper slips on a spilled drink and settles for $180,000, with $40,000 in defense. On 20 November a claim arrives alleging that a patio heater sold by Harborlight started a house fire; the claimant demands $600,000. No other claims have been reported.
1. How much does the insurer pay on the March occurrence, and how does the deductible interact with the limit?
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All bodily injury and property damage arising out of the pergola collapse is one occurrence. The each-occurrence limit is the most the insurer pays for the sum of all damages because of that occurrence, regardless of the number of claimants, claims or claimants' attorneys. Five shoppers do not generate five limits.
Mechanics: total damages are $1,050,000. The deductible applies to damages at $10,000, and the Limits of Insurance apply to the amount of loss in excess of the deductible, so the insurer evaluates $1,040,000 against the $1M limit and pays $1,000,000. Note that the deductible does not reduce the payment here - the loss over the deductible already exceeds the limit, so the retained amount is absorbed inside the limit thickness and Harborlight's uninsured exposure is the $50,000 above the limit.
The $215,000 in defense costs is paid in addition and does not erode the occurrence limit or the aggregate, because this policy is written with defense outside limits. Had defense been inside limits, the defense spend would have consumed limit and left the insured with a much larger uninsured gap.
Coverage C medical expense plays no role: no medical payments were made, and had they been, they would have been charged against the general aggregate.
2. What general aggregate remains available after the March and August claims?
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Track payments, not reserves, and remember what does and does not erode the aggregate.
- March: the general aggregate is reduced by amounts paid under Coverage A for damages outside the products-completed operations hazard. Paid: $1,000,000.
- August: the slip-and-fall is a premises claim, also outside the products hazard. Loss $180,000, less the $10,000 deductible, leaves $170,000 paid. Harborlight absorbs the deductible.
General aggregate remaining: $2,000,000 - $1,000,000 - $170,000 = $830,000.
Items that do not reduce the aggregate: the $215,000 and $40,000 defense payments (defense outside limits), and any amounts the insured paid out of pocket above the occurrence limit. Items that would reduce it: medical expense payments under Coverage C, which are included in the general aggregate alongside Coverage A and B damages.
The practical picture at the start of December: $830,000 of general aggregate left for premises and operations claims, with a month to run, and a $600,000 claim already on the table that may be charged elsewhere depending on how it is characterized.
3. How is the November patio heater claim treated, and what is Harborlight's exposure if a sixth March claimant appears?
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The patio heater claim sits in the products-completed operations hazard: bodily injury or property damage occurring away from premises the insured owns or rents, arising out of the insured's product, after the insured has relinquished physical possession. It is charged against the each-occurrence limit and the $2,000,000 products-completed operations aggregate, not the general aggregate. A $600,000 payment less the $10,000 deductible leaves $1,400,000 of products-completed operations aggregate, and the $830,000 general aggregate stays untouched.
That allocation is the whole answer to the question. Characterizing the claim wrongly would make the policy look nearly exhausted when it is not - but the reverse error is worse, assuming the general aggregate can absorb products claims.
If a sixth March claimant appears, the news is bad. The March occurrence has already paid its $1M limit; the limit is per occurrence, not per claimant, so there is no additional limit by reason of the new claim. The insured funds any further settlement or judgment itself. There is an excess exposure above the limit, and if the insurer rejected a reasonable settlement opportunity within limits before the money ran out, a bad-faith claim is possible.
The forward-looking advice: buy an umbrella with a self-insured retention or drop-down for the remainder of the term, and at renewal increase both aggregates rather than only the occurrence limit.