Casualty Limits: How Much a Policy Pays and How Policies Share a Loss

Casualty Limits: How Much a Policy Pays and How Policies Share a Loss

A liability policy's limit is a ceiling, not a promised payment. The insurer pays the smaller of two amounts: the covered damages, or the limit that still applies. This lesson shows how to find that smaller number when several limits stack, when a retention comes first, and when more than one policy covers the same loss.

Goals and starting terms

By the end, you should be able to:

• Apply per-person, per-accident and aggregate limits to a loss.
• Compare split limits with a combined single limit.
• Tell a deductible from a self-insured retention and calculate each.
• Share a loss using primary/excess, contribution by limits or equal shares, when the policies say which method applies.
• Read a timeline of nonconcurrent policies and spot a possible shortfall.

Terms used throughout:

• Covered damages: the dollar amount the policy agrees to pay for. In every example, all stated losses are covered, the insured is legally responsible, and there are no defense costs or other offsets unless stated.
• Claimant: the person asking for payment.
• Limit: the most the insurer will pay under a stated rule.
• Policy period: the dates the policy is in force.
• Deductible and retention: amounts the insured bears themselves. They are explained below.
• Primary/excess: the primary policy pays first. The excess policy pays only above a stated amount.

All policies, wording and numbers here are made up for teaching.

Split limits: apply the caps in order

With split limits, three separate caps apply to each accident:

1. Per person: the most paid for one person's bodily injury (BI).
2. Per accident, BI: the most paid for all injured people combined.
3. Per accident, property damage (PD): the most paid for all property damage.

Written here as 100/250/50, a policy has a $100,000 per-person cap, a $250,000 per-accident BI cap and a $50,000 PD cap.

Worked example. One accident under 100/250/50:

• Ana: $80,000 covered BI
• Ben: $190,000 covered BI
• Property damage: $40,000

Step 1, per person: Ana is under the cap, so she counts $80,000. Ben is over it, so he counts $100,000. Step 2, per accident BI: $80,000 + $100,000 = $180,000. That is under $250,000, so BI pays $180,000. Step 3, PD: $40,000 is under $50,000, so PD pays $40,000. Total paid: $220,000. Ben's other $90,000 is not paid by this policy.

The PD cap had $10,000 left over. That money does not move to Ben's injury. Each cap applies only to its own kind of loss.

Change one fact. Add Cal with $90,000 BI. Per person: $80,000 + $100,000 + $90,000 = $270,000. The per-accident cap now binds, so BI pays $250,000 in total. Ana, Ben and Cal do not each get $250,000. That figure is shared by everyone hurt in the accident. How the $250,000 is divided among the three is outside this lesson.

Combined single limit: one pool

A combined single limit (CSL) is one dollar amount for any mix of BI and PD in an accident. In this lesson, assume a CSL has no separate per-person cap unless one is stated.

Use the same accident (Ana, Ben, $40,000 PD) with a $300,000 CSL. Total covered damages are $80,000 + $190,000 + $40,000 = $310,000. The policy pays $300,000, and $10,000 is unpaid. Ben's full $190,000 can be paid because no per-person cap exists.

Compare the two policies: the split policy paid $220,000, while the CSL paid $300,000. The difference comes from how the caps are drawn, not just the size of the biggest number.

Try it: a policy has split limits 50/100/25. One accident causes $30,000 BI to Pia, $70,000 BI to Quinn and $32,000 PD. What does the policy pay? Then compare a $125,000 CSL.

Answer: split $105,000; CSL $125,000

Split: Pia counts $30,000. Quinn is capped at $50,000. BI is $80,000, which is under $100,000. PD is capped at $25,000. Total: $105,000. Unpaid: $20,000 of Quinn's BI and $7,000 of PD. The $20,000 of unused BI room cannot cover the PD overflow.

CSL: $30,000 + $70,000 + $32,000 = $132,000. That exceeds $125,000, so the policy pays $125,000.

A tempting mistake is giving Quinn up to $100,000. That is the per-accident cap for everyone, not one person's cap.

Aggregate limits: a shared budget for the period

An aggregate limit is the most the insurer pays for all losses in a stated period, such as one policy year. Each payment uses up part of it. You subtract what was actually paid, not the full per-occurrence limit.

Worked example. A policy has a $500,000 per-occurrence limit and a $1,000,000 aggregate. All three occurrences fall in the same policy period and share the aggregate. There is no restoration.

Occurrence 3 was under its per-occurrence cap, but only $250,000 of the aggregate remained. That $250,000 became the limit that applied, leaving $150,000 unpaid. Check: $300,000 + $450,000 + $250,000 = $1,000,000.

Two tempting mistakes:

• Subtracting $500,000 each time. That would empty the aggregate after two claims and wrongly pay nothing on the third.
• Assuming the aggregate resets with each claim. It renews only if the policy says so, for example in a new policy period.

Try it: the per-occurrence limit is $250,000 and the aggregate is $600,000, with the same period and no restoration. Covered losses arrive in this order: $180,000, $300,000, $140,000, $90,000. What is paid on each?

Answer: $180,000, $250,000, $140,000, $30,000

• Loss 1: pays $180,000, leaving $420,000.
• Loss 2: the per-occurrence cap gives $250,000, leaving $170,000.
• Loss 3: pays $140,000, leaving $30,000.
• Loss 4: under the per-occurrence cap, but only $30,000 remains.

Check: the payments add to $600,000. Unpaid: $50,000 on loss 2 and $60,000 on loss 4.

Deductible vs. self-insured retention

Both a deductible and a self-insured retention (SIR) make the insured carry part of the loss. The difference is who handles and pays first.

Use these hypothetical clauses, each with a $10,000 retention and a $500,000 limit:

• Deductible: the insurer handles the claim, pays covered damages to the claimant, then collects $10,000 back from the insured.
• SIR: the insured handles the claim and pays the first $10,000. Only then does the insurer pay covered damages above that amount, up to $500,000.

Worked example. Covered damages are $60,000.

• Deductible: the insurer pays the claimant $60,000 and recovers $10,000. Net: insurer $50,000, insured $10,000.
• SIR: the insured pays $10,000, then the insurer pays $50,000.

The net amounts match here, but the order of payment and the claim handling do not.

Change one fact. Covered damages are $8,000.

• Deductible: the insurer pays $8,000 and recovers $8,000.
• SIR: the insurer never reaches its starting point. The insured handles and pays everything.

The retention does not stretch the limit. Under these clauses, the insurer still pays no more than $500,000. Real policies differ on defense costs, whether retentions reduce limits, and who controls the claim. Read the actual wording.

Try it: classify each clause, then calculate.

• Clause X: "You must pay and handle the first $15,000 of each covered claim before this insurance applies." The covered loss is $12,000.
• Clause Y: "We pay covered damages, then you repay us the first $15,000." The covered loss is $40,000.

Answer: X is an SIR; Y is a deductible

Under X, the insured pays all $12,000 and the insurer pays $0, because the loss never exceeds the retention. Under Y, the insurer pays the claimant $40,000 and recovers $15,000, so the insurer nets $25,000.

The clue is who pays the claimant first. Both clauses use the word "first," so do not classify by that word alone.

When two policies cover the same loss

An other-insurance clause says how policies share a loss they both cover. The insured cannot collect the loss twice. Two $240,000 payments on a $240,000 loss would let the insured profit from the loss. In each example below, the policies' wording is stipulated to agree on the method. When clauses conflict, the answer depends on the actual contracts and is not settled here.

Primary/excess. The primary policy has a $300,000 limit. The excess policy has a $1,000,000 limit and attaches, meaning starts paying, at $300,000. Both cover the loss on the same terms.

• Loss of $750,000: primary pays $300,000, excess pays $450,000.
• Loss of $1,500,000: primary pays $300,000, excess pays $1,000,000, and $200,000 is unpaid.

Excess insurance does not automatically fill gaps; whether it does so depends on its terms. If part of a loss is excluded under the excess policy's terms, it is not paid just because the excess has limit left.

Contribution by limits. Each insurer pays the same fraction of the loss that its limit is of all applicable limits combined. Insurer A has a $100,000 limit and Insurer B has $300,000, for a combined $400,000. The covered loss is $240,000.

• A's fraction: $100,000 ÷ $400,000 = 1/4. A pays $60,000.
• B's fraction: $300,000 ÷ $400,000 = 3/4. B pays $180,000.

Both payments are under their limits. Check: $60,000 + $180,000 = $240,000.

Equal shares. The insurers pay equal dollars until the smallest limit is used up. Any insurer with limit left then continues. With the same A, B and $240,000 loss:

• Each pays $100,000. A is now exhausted, and $200,000 has been paid.
• B pays the remaining $40,000.
• Result: A pays $100,000 and B pays $140,000.

Do not confuse "equal shares" with each insurer paying an equal percentage of its limit. That is contribution by limits.

Try it with three separate scenarios:

1. Primary/excess: the primary limit is $250,000 and the excess is $750,000, attaching at $250,000. Split a $400,000 loss.
2. Contribution by limits: Insurer C has $200,000 and Insurer D has $500,000. Split a $560,000 loss.
3. Equal shares: the same C and D, with the same $560,000 loss.

Answer: (1) $250,000/$150,000; (2) $160,000/$400,000; (3) $200,000/$360,000

1. The primary pays to its limit, $250,000. The excess pays the $150,000 above the attachment.
2. The combined limits are $700,000. C pays 2/7 × $560,000 = $160,000. D pays 5/7 × $560,000 = $400,000. Both are under their limits, and the total is $560,000.
3. C and D each pay $200,000, so C is exhausted after $400,000 has been paid. D pays the remaining $160,000, for $360,000 in total, which is under its $500,000 limit.

The same loss split differently in parts 2 and 3. The method named in the policies decides the answer.

Nonconcurrent policies: when dates don't line up

Nonconcurrency means policies covering the same exposure have different start or end dates. It does not mean different dollar limits.

Here is why it matters. An umbrella policy often requires a certain amount of underlying insurance. If the underlying policy's annual aggregate runs on a different calendar, losses paid before the umbrella term even began can shrink the underlying limit the umbrella expects.

Worked timeline (fictional requirement):

• Underlying policy: Jan 1 – Dec 31, 2026, with a $2,000,000 annual aggregate.
• Umbrella: Jul 1, 2026 – Jun 30, 2027. It expects $2,000,000 of underlying aggregate.
• March 2026: the underlying policy pays $1,200,000.
• September 2026: a new claim arrives. The underlying aggregate left is $800,000, not $2,000,000.

There is a potential shortfall of $1,200,000 in the underlying insurance the umbrella expected. Who, if anyone, pays within that shortfall depends on the umbrella's wording. This lesson does not decide it.

Nonconcurrency does not guarantee a gap. Matching dates also do not guarantee matching coverage.

Try it: the underlying policy runs Apr 1, 2026 – Mar 31, 2027, with a $1,000,000 aggregate. The umbrella runs Oct 1, 2026 – Sep 30, 2027 and expects $1,000,000 underlying. The underlying policy paid $350,000 in June 2026 and $200,000 in November 2026. On December 15, 2026, how much underlying aggregate remains, and what is the potential shortfall?

Answer: $450,000 remains; potential shortfall $550,000

$1,000,000 − $350,000 − $200,000 = $450,000. The umbrella expects $1,000,000, so the shortfall is $550,000. The June payment happened before the umbrella term began but still counts, because it falls within the underlying policy's own term.

These policies are nonconcurrent because their dates differ, not because of their limits.

Recap

• Pay the smaller of the covered amount and the limit that still applies.
• Split limits: apply the per-person cap first, then the per-accident BI cap. PD has its own cap, and unused room never moves between caps.
• A CSL is one pool for BI and PD combined.
• An aggregate shrinks by actual payments and does not reset unless the policy says so.
• Under the hypothetical clauses used here — Deductible: the insurer pays first, then recovers from the insured. SIR: the insured pays first, then the insurer attaches.
• Shared losses follow the stated method:
  • Primary/excess: in layers.
  • By limits: in proportion to each limit.
  • Equal shares: equal dollars until a limit runs out.
• Nonconcurrency means mismatched dates. Check how much underlying aggregate remains.

Sources

• IRMI, "Aggregate Limit of Liability": https://www.irmi.com/term/insurance-definitions/aggregate-limit-of-liability
• IRMI, "Per Person Limit": https://www.irmi.com/term/insurance-definitions/per-person-limit
• IRMI, "Per Occurrence Limit": https://www.irmi.com/term/insurance-definitions/per-occurrence-limit
• IRMI glossary, combined single limits / split limits: https://www.irmi.com/glossary?page=60
• IRMI, "Self-Insured Retention": https://www.irmi.com/term/insurance-definitions/self-insured-retention
• IRMI, "Other Insurance Clause": https://www.irmi.com/term/insurance-definitions/other-insurance-clause
• IRMI, "Contribution by Equal Shares": https://www.irmi.com/term/insurance-definitions/contribution-by-equal-shares
• IRMI glossary, contribution by limits: https://www.irmi.com/glossary?ancestors=x159873&page=32
• IRMI, "Nonconcurrency": https://www.irmi.com/term/insurance-definitions/nonconcurrency

All scenarios, numbers and clause wording are original and hypothetical. No IRMI examples were reused.