Limits of Liability (Per Claim vs. Aggregate)

Your ALPS LPLI policy is quoted with two policy limits of liability—an “each claim” limit of liability and an “aggregate” limit of liability. The “aggregate” limit of liability is maximum amount ALPS will pay for all claims first made and first reported during the policy period, without regard to the number of claims, claimants, or Insureds. The “each claim” limit of liability is the maximum amount ALPS will pay for any single claim first made and first reported during the policy period, without regard to the number of claimants or number of insureds. The “each claim” limit of liability is always subject to the “aggregate” limit of liability.

As an example, an ALPS quote of $500,000/$1,000,000 means you will have an “each claim” limit of liability of $500,000, but subject to the “aggregate” limit of liability. You will also have an “aggregate” limit of liability of $1,000,000.   

Let’s walk through two very simple examples:

Example 1: A law firm maintains an LPLI policy with $500,00/$1,000,000 limits of liability. Two covered claims are first made against the firm and first reported to ALPS during the policy period. On the first covered claim, ALPS pays damages on behalf of the insured in the sum of $300,000, and on the second covered claim, ALPS pays damages of $450,000. In this first example, the loss payments for both covered claims fall within the “each claim” limit of liability, so not a problem there. In addition, the loss payments for both covered claims do not exceed the $1,000,000 “aggregate” limit of liability, so no problem there either. However, due to the “aggregate” limit of liability, the firm would only have a remaining limit of liability of $250,000 for any subsequent claims first made and first reported to ALPS during the policy period.

Example 2: A different law firm maintains a policy with $250,000/$500,000 limits of liability. Three covered claims are first made against this unhappy law firm and first reported to ALPS during the policy period. The total damages for each claim are $300,000 on the first covered claim; $175,000 on the second covered claim; and $150,000 on the third covered claim.

In this second example, ALPS pays damages on behalf of the insured in the sum of $250,000 on the first covered claim due to the $250,000 “each claim” limit of liability even though damages are $300,000. The law firm remains responsible for the uninsured portion of the damages of $50,000 that are in excess of the $250,000 “each claim” limit of liability.

ALPS pays damages in the sum of $175,000 on the second covered claim because it is within the $250,000 “each claim” limit of liability and, when added to the first claim, is within the $500,000 “aggregate” limit of liability. After two covered claims, however, the firm only has $75,000 remaining available under the “aggregate” limit of liability.

For the third covered claim, ALPS only pays damages of $75,000. Why? Even though the amount of damages in the third covered claim falls within the $250,000 “each claim” limit of liability, the third covered claim is subject to the $500,000 “aggregate” limit of liability and, as noted above, the remaining “aggregate” limit of liability is only $75,000.

Naturally, the legal malpractice insurance cost of a policy increases as the limits of liability increase.