Predicting how your Liability Deductibles will be applied.

Many policies a contractor or service provider purchase contain liability deductibles.  Often the  insurance carrier will put these on for a couple reasons. 

1. Ensures the contractor has some financial interest in preventing claims. 

2. Protects the insurance carrier from a series of small claims. 

How the Deductible Gets Applied to Claims

The deductibles will also either be per Claim or a per Occurrence deductible. This is important in  determining how your deductibles will be applied. 

A per claim deductible means that every person or  entity that you are legally liable to pay damages will have a corresponding deductible for you to pay. If you have three claims, you’ll pay your deductible three times. A per occurrence deductible applies once per incident, regardless of how many claimants filed a claim. If you have multiple different incidents that resulted in having claims brought against your company, you will have to pay one deductible for each incident.   

These sound similar but can lead to a very large difference in total cost of a claim for the insured. Let’s  look at a claim scenario. Lets say you run an excavation company and win a contract to handle the earth  work for a 10 unit subdivision on the side of a hill. Two years after the homes are all completed and sold to 10 different families, a very wet spring causes the homes to start to run down the hill. As expected all  the home owners sue.   

Your policy has a $5000 deductible. If you have an Occurrence policy, your out of pocket costs will be $5000. One incident, one deductible applied. If you have a per claim deductible (also could be stated as  per claimant), you will have 10 claims or claimants.  This means your deductible will be applied to each  of these 10 claims. Your companies out of pocket expense would be $50,000.  Ten claims, ten  deductibles applied.   

Example Scenarios

This scenario might not apply to your company, but what if you had material blow off a roof and damage  cars?  What if you had paint over-spray hit 20 cars in a parking lot?  Many contractors think it would  never happen to them until it does.  It’s important to understand how your deductible will be applied  and look for the worst‐case scenario. You want your insurance to save you from catastrophic claims that  can affect your businesses viability. That’s why you should consider total back end cost of your insurance policies instead of just the price.

Article by Aaron Hennings Aaron has been in the insurance industry since 2010. He specializes in helping businesses in the Construction, Habitational, and Manufacturing industries, but has experience working with businesses of all kinds. Connect with Aaron on