Per Occurrence Vs. Per Claim Deductible: A Costly Difference
The deductible on most standard commercial general liability (CGL) policies can be structured two different ways – and the impact to your bottom line can be significant depending on how the policy is written. Most manufacturers maintain a $5,000 or $10,000 deductible on their CGL. On the surface, the deductible seems straightforward. If you have a covered loss, you pay the first five or ten thousand dollars and the insurer picks up the balance, subject to your policy limits. You’d be right if your policy is written with a ‘per occurrence’ deductible. However, if your policy was issued with a ‘per claim’ deductible, you could be on the hook for many multiplies of your stated deductible. On an occurrence basis, the event that caused the loss is the "occurrence," therefore, one deductible applies. On a per claim basis, one event may involve multiple claimants; therefore, a separate deductible applies to each party to the claim.
For example, let’s say you’re a manufacturer of hoverboards. Not the kind we all hoped we’d have from Back to the Future II, but the kind that erupted on the scene in late 2015 that seems too often to spontaneously combust. One of your hoverboards now belongs to a kid that lives in a 10-unit apartment building. One evening the hoverboard catches fire while charging causing a total loss to the building. This event is considered one event, so with a per occurrence deductible your company would be on the hook for 1x your deductible. This might be $5,000 or $10,000. If your policy is written with a per claim deductible, you might be on the hook for 10x your deductible since there likely will be 10+ claimants. In this scenario you might be facing a total deductible of $50,000 or $100,000+. The difference of one word could cost you tens of thousands of dollars, or more, if overlooked or not understood.
Ensure your broker is on the lookout for this language. Questions? We have answers. Chat with an ‘A’ Team member for more advice on occurrences and deductibles.
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