In E&O policies, there are typically two sets of limits. The first is the limit for each claim (as defined by the policy) and the second is called “the aggregate”. This represents the total limits available for all claims made against that agency for that policy year.
Most agencies will heavily focus on the 1st limit as they consider that limit to be the most critical and in many respects, they are correct. However, that should not imply that the 2nd limit (the aggregate) is of no consequence. Nothing could be further from the truth.
Let’s use the example of limits of $1,000,000 / $1,000,000. An agency would have $1,000,000 for any one claim made against them in that policy year (the 1st number) and $1,000,000 for all claims made against them in that policy year (the second number). Is there a danger of a limit of $1,000,000 / $1,000,000? Most definitely !
First, the $1,000,000 per claim limit is too low in today’s society. Now let’s focus on the agency aggregate limit. If the agency faced a judgment of $1,000,000 for a claim made against them, they now have no further protection in place. In essence, the $1,000,000 claim has exhausted the per claim limit and the aggregate limit, all at the same time.
So what is the solution? An agency should look to secure an aggregate limit that is a multiple of the per claim limit…something like $1,000,000 / $3,000,000. With this scenario, the agency would still have coverage available if they faced the same $1,000,000 judgment referenced above.
When your E&O coverage is coming up for renewal, ask the underwriter for options dealing with both the per claim and aggregate. Then review the premiums. Having these options available will enable you to make the necessary educated decision. Since, in many respects, the purchase of your E&O coverage (and the corresponding limits) is one of the most important decisions you will make during the year, taking the time to review the options will be time well spent.