Policy limits cap the insurer's payment obligation. Liability policies usually state a per-occurrence limit applying to each covered event and an aggregate limit capping total payments during the policy period, with sublimits sometimes applying to specific coverages.
Whether defense costs count against the limits is a separate and critical question determined by the policy form.
Alternative Names:
Limits of Liability, Coverage Limits
Why it Matters?
Available limits drive everything downstream: reserve adequacy, settlement authority, whether a policy-limits demand should be accepted, and whether excess carriers must be placed on notice. Misidentifying available limits, particularly in an eroding-limits policy or a layered tower, is one of the most consequential errors in claims handling and a recurring source of bad faith exposure.
Frequently Confused with
Related terms
Frequently asked questions
What is the difference between per-occurrence and aggregate limits?
Must an insurer disclose policy limits before suit?
