A contractor's general liability insurance policy has a $2,000,000 per occurrence limit and a $4,000,000 aggregate limit. Three separate incidents occur with damages of $1,500,000, $800,000, and $1,200,000. What is the total amount the insurance will pay?
Correct Answer
D) $3,500,000
Each occurrence is within the $2,000,000 per occurrence limit, and the total ($1,500,000 + $800,000 + $1,200,000 = $3,500,000) is within the $4,000,000 aggregate limit, so all claims are covered.
Why This Is the Correct Answer
Check each incident against the per occurrence limit: $1,500,000 < $2,000,000 (fully covered), $800,000 < $2,000,000 (fully covered), $1,200,000 < $2,000,000 (fully covered). Total = $1,500,000 + $800,000 + $1,200,000 = $3,500,000. Check against aggregate: $3,500,000 < $4,000,000 (aggregate not exceeded). Therefore, all three claims are fully paid = $3,500,000.
Why the Other Options Are Wrong
Option A: $3,200,000
$3,200,000 might result from capping the second or third incident incorrectly, or from an arithmetic error. All three incidents are within the per occurrence limit and the aggregate is not breached, so the full $3,500,000 is covered.
Option B: $4,000,000
$4,000,000 is the aggregate cap — but the total actual damages ($3,500,000) are below the aggregate, so the insurer pays actual damages, not the full cap. The aggregate limits maximum exposure; it does not set the payment amount.
Option C: $2,000,000
$2,000,000 would be the answer if a single incident exceeded the per occurrence limit (the insurer would cap at $2,000,000 for that one claim). But none of the three incidents individually exceed $2,000,000, so this cap is never triggered.
Memory Technique
Two-filter system: Filter 1 (per occurrence) — does any single claim exceed $2,000,000? If yes, cap that claim. Filter 2 (aggregate) — does the total of all claims exceed $4,000,000? If yes, cap the total. Apply both filters; pay the lesser of actual or capped amount.
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