Do supplementary payments reduce the limits of a commercial general liability policy?

Supplementary payments are intended to cover additional costs incurred by the insurer while defending a claim or lawsuit, but they do not reduce the limits of liability specified within a commercial general liability (CGL) policy. These payments can include expenses such as court costs, attorney fees, and other necessary costs associated with the defense, while the primary liability limits remain intact.

One of the critical features of supplemental payments is that they operate outside of the actual limit of liability. For example, if a CGL policy has a limit of $1 million and the insurer incurs $50,000 in supplementary payments, the limit for any liability claim remains $1 million rather than reducing to $950,000. This structure allows insured parties to benefit fully from their policy limits while still receiving necessary support for legal and other related expenses.

Understanding this distinction is crucial for policyholders, as it emphasizes that supplementary payments are a design feature to enhance protection without diminishing the financial coverage initially provided by the policy.