A contractor's insurance policy has a $1 million aggregate limit and a $500,000 per occurrence limit. Two separate incidents occur: one causing $400,000 in damages and another causing $300,000. How much will the insurance cover?
Correct Answer
B) $700,000 total
First incident: $400,000 (under per occurrence limit). Second incident: $300,000 (under per occurrence limit). Total: $700,000 (under aggregate limit).
Why This Is the Correct Answer
The insurance will cover the full amount of both incidents since each falls within the per occurrence limit and the total doesn't exceed the aggregate limit. First incident: $400,000 (within $500,000 per occurrence limit). Second incident: $300,000 (within $500,000 per occurrence limit). Combined total: $700,000 (within $1,000,000 aggregate limit). Both limits are satisfied, so full coverage applies.
Why the Other Options Are Wrong
Option A: $600,000 total
$600,000 incorrectly assumes the second incident is only partially covered. This would suggest applying the per occurrence limit incorrectly, perhaps thinking $300,000 exceeds some threshold when it clearly falls within the $500,000 per occurrence limit.
Option C: $500,000 total
$500,000 incorrectly applies only the per occurrence limit to the total, ignoring that each incident is evaluated separately against the per occurrence limit, then the total is checked against the aggregate limit.
Option D: $800,000 total
$800,000 exceeds the actual damages claimed. The total damages are only $700,000 ($400,000 + $300,000), so the insurance cannot pay more than the actual losses incurred.
Memory Technique
Think 'Each incident gets its own allowance (per occurrence), but the family budget has a yearly cap (aggregate)' - each incident is covered up to its limit, total can't exceed aggregate.
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