A contractor's general liability policy has a $2,000,000 aggregate limit and $1,000,000 per occurrence limit. Three separate claims are filed: $600,000, $800,000, and $900,000. How much will the insurance company pay?
Correct Answer
B) $2,000,000
Each claim is within the $1M per occurrence limit, totaling $2.3M, but the aggregate limit caps total payments at $2M for the policy period.
Why This Is the Correct Answer
Each individual claim ($600K, $800K, $900K) is below the $1,000,000 per occurrence limit, so each is fully eligible for coverage. The total of all three = $2,300,000. However, the aggregate limit caps total policy payments at $2,000,000. Therefore, the insurer pays $2,000,000 — the aggregate limit.
Why the Other Options Are Wrong
Option A: $2,300,000
$2,300,000 is the sum of all three claims, but this exceeds the $2,000,000 aggregate limit. The aggregate limit is the absolute maximum the insurer will pay across all claims during the policy period, regardless of how many individual claims are filed.
Option C: $1,600,000
$1,600,000 might result from incorrectly applying the per occurrence limit to one claim and ignoring others, or from some other miscalculation. All three claims are individually within the per occurrence limit, so all three are covered up to the aggregate cap.
Option D: $1,400,000
$1,400,000 does not correspond to any logical calculation of the claims against the policy limits. It may result from subtracting the largest claim or some other error in applying the limits.
Memory Technique
Think of aggregate as the 'yearly budget' for the insurer. Per occurrence is the 'max per incident.' Once the yearly budget ($2M) is spent, no more payments — even if individual claims are within the per-incident cap. Total claims ($2.3M) exceed the budget ($2M), so insurer pays only $2M.
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