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Why per-claim and aggregate limits matter

Online insurance claim form

Firms need to pay attention to their policy’s per-claim and aggregate claim limits.

Does it really matter if your professional services agreement only requires your firm to carry professional liability insurance with a per-claim limit of $1,000,000? It may.

The appropriate language for stating the limits of professional liability coverage under a policy is “per-claim with an aggregate limit.” No U.S. professional liability policy provides unlimited coverage during a policy year. There is always a cap on the insurance company’s exposure through a policy term aggregate limit.

The CNA professional liability insurance policy defines the per-claim limit as “the maximum the Insurer will pay for each claim first made against the Insured and reported to the Insurer during the policy year.” And the aggregate limit is defined as “the maximum the Insurer will pay for all claims first made against the Insured and reported to the Insurer during the policy year.”

Let’s assume a firm is faced with a serious claim that involves three plaintiffs, each with claims valued at $1,500,000. If the policy contains a limit of $1,000,000 per claim with an aggregate limit of $2,000,000, the most the policy would pay to any one plaintiff would be $1,000,000 and the most that would be paid to all of the plaintiffs would be $2,000,000. (And remember that policy limits may also be depleted by expenses as well as any payments made on other claims during the same policy period.)

If the client doesn’t understand and agree to an aggregate claim limit, the firm (not the insurer) may be faced with additional uninsured claims based on the client’s detrimental reliance on the stated “per-claim” limit. This may be a special problem with foreign projects or U.S. projects for foreign clients since the standard British professional indemnity policy has coverage for “each and every claim” with no aggregate policy limit. The client may expect that U.S. professional liability coverage is the same.

And, of course, unless the professional services agreement also contains a limitation of liability provision that is tied to insurance coverage, lack of sufficient insurance proceeds would not protect a firm from claims that exceed the amount of that coverage.

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