Liability Insurance – the difference between Any One Occurrence or In the Aggregate
Insurance can be confusing at the best of times, but when similar insurance cover actually provides what appear to be different limitations, it just makes matters worse.
With Liability insurance, though, these limitations must be understood as they will affect how your claims will be dealt with if you are unfortunate enough to have make a claim.
Public Liability Insurance covers “Any one occurrence” this means it covers claims up to the limit of indemnity of the policy. There is no limit to the number of claims in one insurance year – relatively straightforward.
Product Liability Insurance is slightly different; this type of liability insurance cover is referred to as “in the aggregate”, meaning that if you claim, the remaining monetary cover under the policy is reduced from the policy limit of indemnity.
Understanding Liability Limits of Indemnity
Let’s understand, firstly, though, what a limit of indemnity is and how Public Liability and Products Liability differ.
An indemnity limit is the amount of cover in financial terms that you had agreed with your chosen insurance company when you took out your Liability Insurance policy.
Limits of indemnity come in various shapes and sizes, well sizes really, and this limit determines how much cover you have. These limits vary quite a bit, whilst £1million is seen these days as a little low, £2million, £5million and £10million are more common.
Public Liability is any one claim, but what does this mean.
For this example, we will use the bucket as the indemnity limit and base the bucket’s contents on a monetary value of £1 million.
If you have a Public Liability claim costing £500,000, the bucket is immediately replenished back to £1 million; that’s any occurrence. You could, in theory, have as many claims as you wish throughout the insurance year, and the limit will always be £ 1 million for any one loss; you wouldn’t be very popular with your insurer, though.
Product liability Insurance, In the Aggregate
Still taking the bucket as the indemnity limit, If you have a claim of £500,000, the bucket is not replenished; instead, it remains at the balance between the limit of indemnity less the cost of the claim; it’s not replenished like it is under Public Liability. In this case, if you had a claim for £500,000, the balance in your bucket is £500,000 from your £1million initial cover.
This is where the real difference starts to become apparent, if you then had another claim of £250,000, your bucket is emptied further, leaving you with only £250,000 cover; you have used 750,000 out of your bucket.
In a nutshell, the Public Liability, the limit of indemnity will always remain the same, whilst Product Liability will reduce based on the cost of any claim paid.
How do I obtain the correct Liability Insurance indemnity Limit?
It’s prudent when considering that limit of indemnity that you buy the highest limit you can that most suits your exposure and product risk. Guessing may not end well, so it’s essential that you use the services of a broker who will give you advice.
Here are a few examples of why your product liability limit of indemnity is critical.
USA Product Liability for example, many businesses export their products to this part of the world, a simple skin reaction from a product with allegations of injury could result in a significant claim with substantial legal costs involved. Litigation is rife, and the number of claims can be significantly higher than the same claim brought in a UK court, a high limit of indemnity is essential.
In manufacturing a car part, the resultant damage could be considerable, mainly if an injury is involved.
A component part manufactured for the Aerospace sector fails, resulting in engine damage, which is costly even at the lowest end of the cost spectrum.
Conversely, someone making some rather lovely Jam for the local fete, whilst there could be some contamination, will hardly cost the same amounts as the above examples.
Why should it make a difference? With Product Liability, you could actually run out of cover.