A per occurrence limit is the maximum amount an insurance company will pay for a single covered incident under the terms of your insurance policy. This is regardless of how many claims arise from that incident.
The per occurrence limit represents a crucial component of liability insurance policies, establishing a clear boundary for financial protection. When a covered incident occurs, such as a customer injury or property damage, this limit defines exactly how much your insurer will pay for that specific event after your deductible is met. Any costs exceeding this limit become your business’s responsibility, potentially creating significant financial exposure if set too low.
In most business liability policies, the per occurrence limit operates alongside an aggregate limit, which caps the total payouts for all claims during your policy period (typically one year). For example, a standard general liability policy often features a $1 million per occurrence limit with a $2 million aggregate limit. This structure allows businesses to manage both single catastrophic events and multiple smaller incidents throughout the year.
Per occurrence limits primarily appear in third-party liability policies that cover lawsuits from people outside your business. These include general liability insurance, professional liability insurance, and cyber liability insurance.
While commercial property insurance operates differently than liability insurance, many property policies also include per-occurrence limits for covered perils like fire or storm damage, though these are structured differently than in liability policies and may be subject to additional sublimits for specific types of property.
For business owners, understanding per occurrence limits is essential for effective risk management. The limit you select directly influences your financial protection against lawsuits and claims. Setting appropriate limits requires evaluating your industry’s specific risks, business size, and potential liability exposure.
Construction companies, healthcare providers, and hospitality businesses often require higher per occurrence limits due to their elevated risk profiles.
Table: Comparison of per occurrence limits vs. aggregate limits
| Feature | Per Occurrence Limit | Aggregate Limit |
|---|---|---|
| Definition | Maximum payout for all claims arising from a single incident. | Maximum payout for all claims during the entire policy period. |
| Scope | Applies to one specific event or occurrence. | Applies to multiple events or occurrences over the policy term. |
| Example | Covers all claims from a single fire at a business location. | Covers multiple incidents, such as several fires during the year. |
| Purpose | Protects against catastrophic losses from one major event. | Limits total insurer liability across all claims in a year. |
| Common Usage | Found in general liability policies for single-event risks. | Found in policies managing overall risk exposure over time. |
Practical Examples of Per Occurrence Limits
Restaurant Liability Incident
Imagine you own a popular restaurant in downtown Chicago. During a busy Friday evening, a server accidentally spills hot coffee on three different customers seated at the same table.
All three customers suffer burns requiring medical attention and subsequently file separate lawsuits against your business, with combined claims totaling $850,000 for medical expenses, pain and suffering, and lost wages.
With a $1 million per occurrence limit on your general liability policy, your insurance would potentially cover all three claims because they resulted from a single occurrence (the coffee spill), subject to policy terms, conditions, and any applicable exclusions.
Had your per occurrence limit been only $500,000, your business would be responsible for the additional $350,000 beyond your insurance coverage. This example demonstrates why selecting appropriate limits based on your business’s specific risks is very important.
Construction Company Property Damage
Consider a small construction company renovating a commercial building. During work hours, an improperly secured scaffold collapses, damaging three luxury vehicles in the adjacent parking lot and causing injuries to a pedestrian walking nearby.
The total claims amount to $1.2 million—$900,000 for the vehicles and $300,000 for the pedestrian’s injuries.
With a $1 million per occurrence limit, the construction company would be covered up to that amount, but would need to pay the remaining $200,000 out-of-pocket.
This scenario illustrates how a single incident can generate multiple claims that collectively exceed your per occurrence limit.
For higher-risk industries like construction, it is important to evaluate whether standard limits provide sufficient protection.
Benefits and Challenges
Per occurrence limits offer several important advantages for business owners. They provide predictable financial protection against potentially catastrophic claims, allowing for more precise budgeting and risk management planning.
The limits enable businesses to tailor their coverage to specific operational needs and industry exposures, rather than adopting a one-size-fits-all approach.
Increasing your per occurrence limit often costs proportionally less than the additional coverage it provides, offering a cost-effective way to enhance your protection against significant claims.
However there is the potential for coverage gaps when claims exceed your selected limit, leaving your business exposed to out-of-pocket expenses.
Many business owners struggle to accurately assess their appropriate limit needs, frequently underestimating potential liability in worst-case scenarios.
Another challenge emerges with incidents that occur over extended periods, such as gradual environmental damage, where determining what constitutes a single “occurrence” can become legally complex and potentially lead to coverage disputes with insurers.
How Per Occurrence Limits Differ from Per Claim Limits
The main distinction lies in how claims are grouped and capped:
- Per occurrence limits focus on the total payout for all claims tied to one incident.
- Per claim limits focus on payouts for individual claims, regardless of their connection to other claims or events.
While both per occurrence limits and per claim limits are mechanisms used in insurance policies to cap payouts, they differ fundamentally in how they apply to covered incidents and claims.
Key Differences
A per occurrence limit is the maximum amount an insurer will pay for all claims arising from a single event or incident, regardless of the number of claims filed. For example, if multiple parties are injured or property is damaged due to one incident, all claims will collectively be subject to the per occurrence limit. See Occurrence Insurance and What Is a Per-Occurrence Limit in Business Insurance?
A per claim limit, on the other hand, is the maximum amount an insurer will pay for each individual claim, regardless of whether multiple claims stem from the same incident. Each claim is treated independently under this limit. See: What is a per claim limit? and Per Claim Limit Meaning & Definition
Did You Know?
The definition of ‘occurrence’ in insurance has been the subject of significant litigation, with courts across different jurisdictions sometimes reaching contradictory conclusions about what constitutes a single occurrence versus multiple occurrences.
This legal ambiguity can significantly impact claim payouts, as what an insurer considers one occurrence (subject to a single per occurrence limit) might be interpreted by courts as multiple occurrences (triggering the per occurrence limit multiple times).
This complexity explains why insurance policies now typically include specific definitions of “occurrence” to reduce potential disputes.
Sources and further reading
What Is a Per-Occurrence Limit in Business Insurance? – Insureon
per occurrence limit – IRMI
What Does Per-Occurrence Limit Mean in Business Insurance?
What is the difference between per occurrence and per aggregate
General Liability Insurance Limits | Insureon
What is a Per-Occurrence Limit in Business Insurance?
Occurrence Insurance | Thimble
What is a per claim limit? | NEXT Insurance
What Are “Aggregate Limits” and “Per-Occurrence Limits” in My …