Understanding Depleting Limits of Liability

Understanding Depleting Limits of Liability in a Professional Liability Policy for Architects and Engineers

Limits of liability in your firm’s policy will be defined in the declarations page of your firm’s policy and is determined at renewal time or when your firm initially purchases the policy.  The limits of liability will look something like this:

Item 4. Limit of Liability (inclusive of Claim Expenses):

  1. $1,000,000 Each Claim
  2. $2,000,000 Policy Aggregate

These are the limits that your firm has, in the event of a claim.  There are a few items to keep in mind with regards to the policy.  The limit of liability in Professional Liability policy typically included claims expenses, meaning the claims expenses are not outside of the limits.  Additionally the limit of liability has a per claim and an aggregate limit.  The deductible does not generally apply to the limit; it will be outside of the limit.

When your firm does report a claim to the insurance company claims expenses will begin immediately.  This is so that an attorney can review the file and set up the next steps to proceed with the claim.  As an example, the claim may get to a settlement amount of $450,000 plus $50,000 of claims expenses making it a total for the claim of $500,000.  This will deplete the limit of liability on the aggregate amount for the policy period to $1,500,000 in the limits displayed above.   If your firm has another claim in the same policy period for another $500,000 the aggregate limits are again depleted to $1,000,000.

It is important to remember that this is not a frequent occurrence but it can happen and your firm may need to make your client aware based on contract requirements.

If your firm has the same aggregate limit as the per claim limit this may deplete the limits quicker in the scenario above.

Always read your policy to know the limits of liability and how your insurance policy handles the claims.   If you have any questions please call or email your Professional Underwriter.

depleting limits

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