7.1 CGL Limits Structure & How Limits Apply

7.1 CGL Limits Structure & How Limits Apply

The Declarations page of an ISO Commercial General Liability (CGL) policy displays dollar figures that define the financial parameters of the insurer's promise. However, understanding how those numbers function in active litigation requires a thorough examination of Section III – Limits of Insurance of the standard CG 00 01 coverage form. Section III establishes the contractual rules governing how payments are capped, how distinct claims erode available coverage, and when an insurer's legal obligations—including the vital duty to defend—come to an absolute end.

Commercial casualty coverages utilize a two-tiered limits architecture: broad overarching aggregate limits that cap total losses over an annual policy term, and specific per-occurrence or per-person sublimits that restrict the payout for any single event, offense, or individual claimant.

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1. The Two Aggregate Limits

An aggregate limit is the maximum dollar amount the insurance company will pay for all covered claims during a single 12-month policy period, regardless of how many individual occurrences, offenses, or injured parties arise. The standard ISO CGL form contains two completely separate, independent aggregate limits:

┌─────────────────────────────────────────────────────────────────────────────┐
│                     COMMERCIAL GENERAL LIABILITY LIMITS                     │
├──────────────────────────────────────────┬──────────────────────────────────┤
│          GENERAL AGGREGATE LIMIT         │  PRODUCTS-COMPLETED OPERATIONS   │
│               ($2,000,000)               │      AGGREGATE ($2,000,000)      │
├──────────────────────────────────────────┼──────────────────────────────────┤
│ • Coverage A: Premises & Ongoing Ops     │ • Coverage A: Products Hazard    │
│ • Coverage B: Personal & Advertising     │ • Coverage A: Completed Ops      │
│ • Coverage C: Medical Payments           │                                  │
│   (Subject to sublimits below)           │ (Subject to Each Occurrence)     │
├──────────────────────────────────────────┴──────────────────────────────────┤
│                 EACH OCCURRENCE LIMIT ($1,000,000)                          │
│  • Caps sum of Cov A (BI/PD) + Cov C (Med Pay) per single occurrence        │
├──────────────────────────────────────────┬──────────────────────────────────┤
│ PERSONAL & ADVERTISING INJURY LIMIT      │ DAMAGE TO PREMISES RENTED TO YOU │
│ • $1,000,000 per person/organization     │ • $100,000 sublimit per occurr.  │
│ • Subject to General Aggregate only      │ • Subject to Each Occurrence     │
├──────────────────────────────────────────┴──────────────────────────────────┤
│                 MEDICAL EXPENSE LIMIT ($5,000)                              │
│ • Per person under Coverage C                                               │
│ • Subject to Each Occurrence & General Aggregate                            │
└─────────────────────────────────────────────────────────────────────────────┘

a) General Aggregate Limit

The General Aggregate Limit is the cumulative ceiling for all indemnity payouts under:

1. Coverage A (Bodily Injury and Property Damage Liability) arising from premises owned, rented, or occupied by the insured, as well as ongoing commercial operations in progress.
2. Coverage B (Personal and Advertising Injury Liability) arising from covered offenses such as false arrest, libel, slander, wrongful eviction, and copyright infringement in advertising.
3. Coverage C (Medical Payments) for no-fault emergency medical expenses incurred by third parties on the insured premises or resulting from operations.

The Critical Exclusion from General Aggregate: The General Aggregate Limit does not apply to bodily injury or property damage included within the "products-completed operations hazard." Those claims are tracked and paid out of a completely separate fund.

b) Products-Completed Operations Aggregate Limit

The Products-Completed Operations Aggregate Limit is an independent financial bucket dedicated exclusively to bodily injury and property damage claims falling within the defined products-completed operations hazard (PCOH). Under Section V of the CGL, PCOH encompasses bodily injury and property damage occurring away from premises owned or rented by the named insured and arising out of "your product" (once physical possession has been relinquished) or "your work" (once the work has been completed or put to its intended use).

Because the two aggregates are legally independent:

• A $1,000,000 products liability payout reduces the Products-Completed Operations Aggregate, leaving the General Aggregate completely untouched.
• Conversely, a massive premises slip-and-fall settlement reduces the General Aggregate, leaving the full Products-Completed Operations Aggregate available for future completed work claims.

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2. Per-Occurrence and Per-Person Sublimits

Beneath the two overarching aggregates sit four specific limits that control individual losses:

a) Each Occurrence Limit

The Each Occurrence Limit is the most the insurer will pay for the sum of all damages under Coverage A and all medical expenses under Coverage C arising out of any single occurrence. An occurrence is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Regardless of whether 1 person or 25 people are injured in a single building collapse or chemical spill, the Each Occurrence Limit is the maximum total indemnity available for that single event. Every dollar paid under the Each Occurrence Limit simultaneously erodes either the General Aggregate or the Products-Completed Operations Aggregate, depending on the nature of the claim.

b) Personal and Advertising Injury Limit

The Personal and Advertising Injury Limit is the most the insurer will pay under Coverage B for the sum of all damages sustained by any one person or organization. Because Coverage B liabilities arise from defined intentional tort "offenses" (such as slander, libel, or misappropriation) rather than physical "occurrences," this limit applies on a per-person or per-organization basis. Payments under Coverage B do not erode the Each Occurrence Limit; they erode only the General Aggregate Limit.

c) Damage to Premises Rented to You Limit

The Damage to Premises Rented to You Limit (historically referred to as Fire Damage Legal Liability) is a sublimit within the Each Occurrence Limit. It applies to property damage liability for which the insured becomes legally liable regarding real property rented to the insured or temporarily occupied with the owner's permission. Under the standard form, this limit applies in two distinct situations:

1. Fire Damage to Rented Premises: Property damage caused by fire to premises rented to the named insured for any duration, or temporarily occupied with permission.
2. Short-Term Rentals (7 Days or Fewer): Property damage caused by any covered peril (not just fire) to premises—and contents—rented to the named insured for a period of seven or fewer consecutive days (such as an exhibition hall, event room, or temporary workspace).

Any indemnity paid under the Damage to Premises Rented to You Limit is part of—and reduces—the Each Occurrence Limit and the General Aggregate Limit.

d) Medical Expense Limit

The Medical Expense Limit is a sublimit within both the Each Occurrence Limit and the General Aggregate Limit. It dictates the most the insurer will pay under Coverage C for all medical expenses resulting from bodily injury sustained by any one person in any single accident. The dollar amount comes from the Declarations; $5,000 and $10,000 per person are common choices, and some insurers offer higher amounts or exclude medical payments entirely.

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3. Limits Application, Annual Resets, and Defense Obligations

Annual Policy Period Reset

CGL aggregate limits apply strictly to each annual policy period. When a policy renews for a subsequent 12-month term, both the General Aggregate and the Products-Completed Operations Aggregate reset to their full original limits. Unused limits do not roll over from one policy year to the next, nor can an insured borrow limits from a future policy term to cover a shortfall in the current year. Section III states that the limits apply separately to each consecutive annual period and to any remaining period of less than 12 months; if a policy is extended after issuance for less than 12 months, the extension is treated as part of the last preceding period.

Depletion and the Termination of the Duty to Defend

One of the most consequential legal principles in commercial casualty is the relationship between policy limits and defense obligations:

• Defense Costs Outside Limits: Under Section I – Supplementary Payments, legal defense costs, attorney fees, court costs, and pre-judgment interest are paid by the insurer in addition to (outside) policy limits. A carrier that expends $400,000 defending an insured does not reduce the $1,000,000 Each Occurrence limit by a single cent.
• Indemnity Exhaustion Terminates Defense: Under the Coverage A and Coverage B Insuring Agreements, the insurer's duty to defend ends when the applicable limit of insurance has been exhausted in the payment of judgments or settlements. If an insurer tenders its $1,000,000 limit to satisfy a settlement or court judgment, its contractual duty to defend that lawsuit ceases immediately. More critically, if the entire General Aggregate Limit is exhausted by paying judgments or settlements across multiple claims, the insurer has no obligation to defend or indemnify any subsequent premises-operations, advertising injury, or medical payment claims filed during that policy period.

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4. Comprehensive Worked Mathematical Claims Scenario

To see how these limits interact and deplete over an annual policy period, consider the claims experience of Midwest Hospitality & Retail LLC. The firm carries an unendorsed ISO CG 00 01 policy with the following Declarations limits:

• General Aggregate Limit: $2,000,000
• Products-Completed Operations Aggregate Limit: $2,000,000
• Each Occurrence Limit: $1,000,000
• Personal and Advertising Injury Limit: $1,000,000
• Damage to Premises Rented to You Limit: $100,000
• Medical Expense Limit: $5,000

Over the course of the policy year, the company experiences four successive claims:

Claim 1: Coverage A – Premises Slip-and-Fall

The Event: A customer slips on a freshly waxed floor in the insured's showroom, sustaining multiple spinal fractures requiring surgery. The customer files a bodily injury lawsuit.

• Resolution: Settlement reached for $450,000 indemnity. The insurer incurs $65,000 in legal defense fees.
• Application to Limits:
  1. The $65,000 defense cost is paid under Supplementary Payments and does not reduce any policy limit.
  2. The $450,000 settlement is subject to the Each Occurrence Limit of $1,000,000. It is fully covered.
  3. Because this is a premises liability claim, it erodes the General Aggregate Limit.
• Ledger Impact:
  • General Aggregate: $2,000,000 - $450,000 = $1,550,000 remaining.
  • Products-Completed Operations Aggregate: $2,000,000 remaining (untouched).
  • Available Each Occurrence Limit for a future separate occurrence: $1,000,000 (subject to the remaining aggregate).

Claim 2: Coverage B – Commercial Slander & Defamation

The Event: The insured's marketing vice president makes false, disparaging statements about a primary competitor's financial stability during a live broadcast trade interview. The competitor sues for slander and product disparagement under Coverage B.

• Resolution: A court judgment is entered awarding the competitor $700,000 in compensatory damages. The insurer spends $120,000 in legal defense fees.
• Application to Limits:
  1. The $120,000 defense fee is paid outside limits under Supplementary Payments.
  2. The $700,000 judgment is subject to the Personal and Advertising Injury Limit of $1,000,000 per person/organization. It is paid in full.
  3. Coverage B claims do not stem from an occurrence; they stem from an offense. Therefore, this claim does not erode the Each Occurrence Limit.
  4. Coverage B claims directly erode the General Aggregate Limit.
• Ledger Impact:
  • General Aggregate: $1,550,000 - $700,000 = $850,000 remaining.
  • Products-Completed Operations Aggregate: $2,000,000 remaining (untouched).

Claim 3: Coverage C – Customer Emergency Medical Expense

The Event: A patron lacerates their arm on a cracked glass display case in the retail boutique. The customer incurs $7,500 in emergency room and physician treatment expenses and immediately presents the bills under Coverage C.

• Resolution: The claim is evaluated on a no-fault basis.
• Application to Limits:
  1. Coverage C is subject to the Medical Expense Limit of $5,000 per person.
  2. The insurer pays the policy maximum of $5,000. The remaining $2,500 cannot be paid under Coverage C (the patron would have to establish legal negligence under Coverage A to recover the remainder).
  3. Coverage C payments erode both the Each Occurrence Limit for that incident and the General Aggregate Limit.
• Ledger Impact:
  • General Aggregate: $850,000 - $5,000 = $845,000 remaining.
  • Products-Completed Operations Aggregate: $2,000,000 remaining (untouched).

Claim 4: Coverage A – Products-Completed Operations Hazard (PCOH)

The Event: Four months earlier, the insured assembled and installed custom commercial shelving in a client's warehouse. The shelving unit collapses due to improper bolt installation, severely injuring a warehouse worker ($500,000 BI) and crushing $250,000 worth of electronic inventory ($250,000 PD). Total claim: $750,000.

• Resolution: The claim is settled for $750,000. Legal defense costs total $95,000.
• Application to Limits:
  1. The work was completed and off the insured's premises, placing the loss squarely within the products-completed operations hazard.
  2. The $95,000 defense fee is paid outside limits under Supplementary Payments.
  3. Total damages ($750,000) are within the $1,000,000 Each Occurrence Limit. Paid in full.
  4. The Critical Aggregate Shift: Because this loss arises out of completed operations, it erodes the Products-Completed Operations Aggregate Limit, NOT the General Aggregate Limit!
• Ledger Impact:
  • Products-Completed Operations Aggregate: $2,000,000 - $750,000 = $1,250,000 remaining.
  • General Aggregate: $845,000 remaining (unaffected by Claim 4).

Annual Claims Summary Ledger

This progression clearly illustrates how the ISO CGL protects an enterprise across multiple claims: the separate aggregate ensures that a major completed operations disaster does not wipe out premises liability protection, and vice versa.