A contractor's general liability policy has aggregate limits of $1,000,000 and per-occurrence limits of $500,000. Two separate incidents occur: one resulting in $300,000 damages, another in $400,000. How much will insurance pay total?
Correct Answer
A) $700,000
First incident pays $300,000 (under per-occurrence limit). Second pays $400,000 (under per-occurrence limit). Total $700,000 is under the $1,000,000 aggregate limit.
Why This Is the Correct Answer
$700,000 is correct. Incident 1 causes $300,000 in damages — under the $500,000 per-occurrence limit, so the full $300,000 is paid. Incident 2 causes $400,000 — under the $500,000 per-occurrence limit, so the full $400,000 is paid. Total paid = $700,000, which is under the $1,000,000 aggregate. The policy pays the full $700,000.
Why the Other Options Are Wrong
Option B: $600,000
$600,000 is incorrect. This would result if one of the incidents were capped at the per-occurrence limit of $500,000, but neither incident ($300,000 or $400,000) exceeds $500,000, so both are paid in full.
Option C: $800,000
$800,000 is incorrect. This figure does not correspond to any correct application of the policy limits. Neither incident exceeds its per-occurrence cap, and the aggregate is not reached.
Option D: $500,000
$500,000 is incorrect. This would apply only if both claims were treated as a single occurrence capped at $500,000, but they are two separate incidents, each evaluated independently against the per-occurrence limit.
Memory Technique
Think of per-occurrence as individual buckets and the aggregate as one large tank. Each bucket can hold up to $500,000. The tank holds $1,000,000 total. Fill each bucket, then pour into the tank — stop when the tank is full.
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