A Michigan contractor's general liability policy has a $2 million aggregate limit and $1 million per occurrence limit. They have two claims: $800,000 and $1.2 million. How much will the insurance company pay total?
Correct Answer
D) $1,800,000
The first claim pays $800,000 (under per occurrence limit). The second claim pays $1,000,000 (limited by per occurrence maximum). Total paid: $1,800,000, which is under the $2 million aggregate.
Why This Is the Correct Answer
The per occurrence limit caps each individual claim at $1,000,000. The first claim of $800,000 is paid in full (under the $1M per occurrence limit). The second claim of $1,200,000 is capped at $1,000,000 due to the per occurrence limit. Total paid = $800,000 + $1,000,000 = $1,800,000, which is still under the $2 million aggregate, so the aggregate does not further reduce the payout.
Why the Other Options Are Wrong
Option A: $2,000,000 minus deductibles
$2,000,000 minus deductibles is incorrect because the per occurrence limit of $1,000,000 caps the second claim at $1,000,000 (not $1,200,000), so the total paid is $1,800,000 regardless of deductibles being mentioned.
Option B: $1,600,000
$1,600,000 is incorrect. This figure does not accurately reflect either claim calculation. The first claim of $800,000 is paid in full, and the second claim is capped at $1,000,000 — not $800,000.
Option C: $2,000,000
$2,000,000 is incorrect. While the aggregate limit is $2 million, the total of what the insurer actually owes is $800,000 + $1,000,000 = $1,800,000. The aggregate is not automatically the amount paid; only actual covered amounts are paid.
Memory Technique
Think of the per occurrence limit as a 'per game score cap' and the aggregate as a 'season total cap.' Each game (claim) can't exceed the per-game cap first, then the season total can't exceed the season cap. Here: Game 1 = $800K (under $1M cap). Game 2 = $1.2M → capped at $1M. Season total = $1.8M (under $2M aggregate).
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