A liability limit often gets chosen the way people pick a lucky number: round, familiar, and comfortable. A better approach treats the limit as a decision with real inputs. For E&O and cyber, a handful of factors point you toward the right number. Here is a framework for reasoning about it.
Start with contract requirements
If your clients require a minimum limit, that sets a floor. You generally cannot go below what your contracts demand without risking the relationship or breaching the agreement. But a contract minimum is a starting point, not the finish line, because your real exposure may call for more than any single client asks.
Weigh revenue and engagement size
The bigger your revenue and the larger your engagements, the larger a plausible claim tends to be. A firm handling small projects has a different exposure than one running work where a mistake could cost a client a great deal. Sizing the limit to the damage a realistic claim could cause is the core of the exercise.
Account for defense-cost erosion
Here is the detail firms miss. On many policies, defense costs are drawn from the same limit that would pay a settlement. A long, expensive defense can leave less available for the claim itself. So a limit is not purely a settlement fund, it may also have to absorb the cost of the fight. Confirm how your policy handles defense before you settle on a number.
Understand per-claim and aggregate
A per-claim limit generally caps what the policy pays for one claim. The aggregate caps what it pays across the whole policy period. Both matter. Several smaller claims in one year can reach the aggregate even if no single one is large. Choosing a limit means thinking about both the worst single claim and a bad year overall. For more, see per-claim vs aggregate limits.
Match the risk, not the average
There is no universal right answer. A limit that fits a small solo practice may leave a growing firm exposed. The goal is a limit that matches your contracts, your revenue, and the severity of a claim you could realistically face, structured in a way you understand.
Questions to ask your advisor
- What limit do my current contracts require, and is that my floor?
- Given my revenue and engagement size, what claim severity should I plan for?
- Do defense costs erode my limit, or sit outside it?
- Are my per-claim and aggregate limits both appropriate for a bad year?
- When did we last revisit this limit against how the firm has changed?
A good limit is a reasoned choice, not a comfortable round number. A short review walks through these inputs with you, so the number you carry reflects your contracts, your risk, and how the policy actually pays.
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