Per claim limit

A per claim limit is the maximum amount an insurer will pay in respect of each individual claim under a liability policy, irrespective of how many separate claims are notified during the policy period.

Definition §

A per claim limit operates as a ceiling on the insurer's liability for any one claim made against the insured during the policy period. Whatever the number of separate claims notified, the insurer's exposure on each individual claim is capped at the per-claim limit, subject to any aggregation clause that may bundle several claims together as one. ^[1]

The mechanics are straightforward in principle but interact intricately with three other parts of a liability policy. First, the aggregation clause determines whether what looks like a number of claims is treated for limits purposes as one claim. Where aggregation engages, all the aggregated claims share a single per-claim limit. Where it does not, each claim attracts its own per-claim limit. ^[2]

Second, the policy may or may not impose an aggregate limit in addition to the per-claim limit. Where there is an aggregate limit, the insurer's total exposure across the policy period is capped at that aggregate figure, no matter how many separate per-claim limits would otherwise apply. Where there is no aggregate limit on a given layer, the per-claim limit is the only ceiling and the insurer's total exposure is, in principle, unlimited in number of claims. ^[3]

Third, the per-claim limit interacts with the excess. The excess is the amount the insured retains on each claim before insurer indemnity engages. If two claims aggregate to one, the insured pays one excess; if they remain separate, the insured pays two.

Legal / Regulatory basis §

Per-claim limits are a feature of contract rather than statute, but minimum levels are mandated by professional regulators and by the FCA for various regulated activities.

The Solicitors Regulation Authority Minimum Terms and Conditions of Professional Indemnity Insurance require qualifying insurers to provide cover of at least the minimum sum insured for any one claim. The current minimum sums insured are set by the SRA from time to time and are stated in the MTC. The MTC also contain the composite aggregation provision that determines whether multiple claims share a single per-claim limit. ^[4]

The RICS minimum policy wording for chartered surveyors similarly specifies minimum per-claim limits calibrated to the firm's turnover. The FCA's MIPRU 3.2.7R sets minimum levels of professional indemnity insurance for insurance intermediaries, including a per-claim minimum. ^[5]

The Insurance Act 2015 provides the general law governing the construction of liability policies, including the principles applicable to the interpretation of limits and aggregation wording. ^[6]

The case law on per-claim limits is largely embedded in the aggregation cases, because the practical question of how many per-claim limits respond is the question of whether aggregation engages. The Supreme Court in AIG Europe Ltd v Woodman [2017] UKSC 18, the House of Lords in Lloyds TSB v Lloyds Bank Group Insurance [2003] UKHL 48 and the House of Lords in Axa Reinsurance (UK) plc v Field [1996] 1 WLR 1026 all address per-claim limits in this indirect way. ^[7]

How it works in practice §

In day-to-day claims handling the per-claim limit is one of the first figures noted from the policy schedule. When a claim is reserved, the reserve will be set with the per-claim limit in mind. When the reserve approaches the limit, the insured and broker will be notified and consideration will be given to excess layer cover if any.

The per-claim limit usually includes defence costs ("costs inclusive") or excludes them ("costs in addition"). Where defence costs are inclusive, the limit erodes as costs are incurred, leaving less available for damages and settlement. Where defence costs are in addition, the limit is preserved for damages and settlement and costs are met outside the limit, sometimes subject to a separate cap. The SRA MTC require defence costs to be payable in addition to the limit. ^[8]

Per-claim limits also drive notification strategy. Where a developing problem could give rise to many claims, the question of whether those claims aggregate to one — and therefore consume only one per-claim limit — is critical to whether the firm should seek excess layer cover and at what level. A view on aggregation taken at the time of notification can prove decisive years later.

Per-claim limits are typically purchased in layers. The primary layer carries the cover up to its limit; an excess layer sits above the primary and engages only when the primary is exhausted. Each layer has its own per-claim limit, and the layers may have different aggregation wordings. Care is needed to ensure consistency, because mismatched wordings can leave gaps. ^[9]

Common variations §

Some policies provide a single combined limit covering both per-claim and aggregate exposure, with the same figure functioning as both. This is common in directors' and officers' policies and in management liability wordings.

Other policies provide a per-claim limit with no aggregate limit at all on the primary layer. This is the standard for solicitors' PI cover written on SRA Minimum Terms at the qualifying level, although excess layers above the qualifying level frequently carry their own aggregate limits. ^[10]

Still other policies provide an aggregate limit that is a multiple of the per-claim limit — typically 1x, 1.5x or 2x. The choice of multiplier reflects the insured's perceived exposure to frequency of claims relative to severity.

Some specialty wordings include a "reinstatement" feature whereby the per-claim limit refreshes after exhaustion, subject to an aggregate cap on the number of reinstatements. This is more common in cyber and crime policies than in mainstream PI.

The treatment of defence costs varies. Costs inclusive structures are common in directors' and officers' and in some commercial liability wordings; costs in addition structures predominate in regulated PI and in the SRA MTC.

Example §

A regulated insurance intermediary holds professional indemnity insurance with illustrative limits of £2,000,000 per claim and £5,000,000 in the aggregate, with a £10,000 per-claim excess. Defence costs are payable in addition to the limit.

Three unconnected claims are notified during the policy year. The first settles for £400,000 plus £150,000 of defence costs; the second settles for £1,800,000 plus £400,000 of defence costs; the third settles for £900,000 plus £200,000 of defence costs.

For each claim the insured pays a £10,000 excess. The insurer pays damages and costs subject to the £2,000,000 per-claim limit for damages and to any separate provision for costs. The total damages paid by the insurer across the three claims is £3,100,000, comfortably within the £5,000,000 aggregate.

If, instead, the three claims aggregated to one under the policy's aggregation clause (for example because they arose from a single act or omission), the insured would pay a single £10,000 excess and the insurer's liability for damages would be capped at the single £2,000,000 per-claim limit, leaving the insured exposed for the balance.

These figures are illustrative; the actual position depends on the wording and the facts.

See also §

• /wiki/aggregate-limit/ — the period-wide cap
• /wiki/each-and-every-loss/ — closely related concept
• /wiki/aggregation-clause/ — the mechanism that decides how many per-claim limits respond
• /wiki/excess-insurance/ — what the insured retains per claim
• /wiki/deductible/ — variant terminology
• /wiki/professional-indemnity-insurance/ — the line of business
• /wiki/llp-pi/ — PI in the LLP context

References §

1. ↑ SRA Minimum Terms and Conditions of Professional Indemnity Insurance — https://www.sra.org.uk/solicitors/standards-regulations/indemnity-insurance-rules/
2. ↑ FCA Handbook, MIPRU 3.2 — https://www.handbook.fca.org.uk/handbook/MIPRU/3/
3. ↑ AIG Europe Ltd v Woodman [2017] UKSC 18 — https://www.supremecourt.uk/cases/uksc-2016-0033.html
4. ↑ Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48 — https://publications.parliament.uk/pa/ld200203/ldjudgmt/jd031106/lloyds-1.htm
5. ↑ Axa Reinsurance (UK) plc v Field [1996] 1 WLR 1026 (HL)
6. ↑ Insurance Act 2015 — https://www.legislation.gov.uk/ukpga/2015/4