In short. The capacity of a liability policy is not one figure: it is a system of five. Limit per claim, annual aggregate limit, sub-limit per section, sub-limit per victim and deductible operate on different bases and at different moments. The deductible subtracts from below; the sub-limit cuts from above. And not all of those figures hold up equally: the Spanish Supreme Court has set aside a sub-limit per victim for failing to comply with the formalities of article 3 of the Insurance Contract Act.
In its judgment 1581/2025 of 5 November, the Spanish Supreme Court set aside the sub-limit per victim in a liability policy and required the insurer to respond up to the overall limit per claim. The reasoning fits in a line: that sub-limit does not describe the risk, it cuts it back. It is therefore a limiting clause; and a limiting clause that fails to comply with article 3 of Law 50/1980 is not enforceable.
A single figure in the schedule of covers, badly incorporated, changed the outcome of the claim. It is worth reading the whole schedule.
Anatomy of a limit: five figures that are not the same
The starting point is article 27 of Law 50/1980, the Spanish Insurance Contract Act: the sum insured represents the maximum indemnity payable by the insurer on each claim. Those last three words are the key to everything else. The remaining figures in the schedule of covers are contractual constructions that modulate that rule.
- Limit per claim. The ceiling on each event. It is the figure most finance directors identify as "the policy capacity", and it is only one of the five.
- Annual aggregate limit. The combined ceiling for all claims occurring in the same policy period. A structure of "€1,000,000 per claim and €2,000,000 in the annual aggregate" does not mean two million is always available: it means the capacity for the year is two million and that no individual claim can consume more than one.
- Sub-limit per section. A lower ceiling applying to a specific cover: employers' liability, completed operations, property being worked upon and property in care, custody or control, accidental pollution, tenant's legal liability. This is where the mismatch we most often find when reviewing programmes is concentrated.
- Sub-limit per victim. It caps what is payable to each injured party within a single claim. In an accident with several injured people it is the figure that decides how much each of them receives.
- Deductible. An amount subtracted from the indemnifiable base of each claim and borne by the insured.
The operational distinction is simple and almost never made explicit: the deductible subtracts from below; the sub-limit cuts from above. They act at opposite ends of the calculation and are not interchangeable. Nor are they a discount: the deductible is a retention of risk. And it should not be confused with the compulsory retention, which is not a fixed amount but a percentage of the loss that remains with the insured. These are three distinct mechanisms and a policy may carry all three.
The inherited figure
The €300,000 that appears by default on so many quotations is not an evidenced market standard: no public source supports it. Its origin is recognisable in sector regulation — article 37(c) of the Spanish Regulation on Thermal Installations in Buildings (RITE), for instance, sets that minimum cover for heating installation and maintenance firms — and from there it spread into general practice.
A regulatory minimum designed for an installer does not measure the exposure of an industrial company with four hundred employees. It is a figure that gets carried forward, not one that gets calculated.
Could you say today what your policy's annual aggregate is and how much of it is still available? Request a technical review of your programme.
Exhausting the annual aggregate
This is the most expensive blind spot and almost nobody addresses it.
Assume a policy of one million per claim and two million in the annual aggregate. In March a claim is settled for €900,000. In September a second arrives at €1,400,000. The insurer will respond up to the remaining aggregate — €1,100,000 — and the difference stays with the company. There is no coverage dispute and no exclusion to invoke: the capacity for the year is simply spent.
The mechanism that corrects this is reinstatement of the limit: the clause under which, once the aggregate is wholly or partly exhausted, the capacity becomes available again, usually against an additional premium and with an agreed number of reinstatements. It does not come as standard. It is negotiated, and it is negotiated beforehand, not once the second claim has happened.
It follows that the aggregate should be sized against expected frequency, not only against worst-case severity. And that, if the policy is written on a claims-made basis, the interaction between the coverage period and the aggregate calls for specific attention; we develop this in claims-made versus occurrence.
Defence costs: inside or outside the limit?
Article 74 of Law 50/1980 provides that, unless otherwise agreed, the insurer has conduct of the defence against the injured party's claim and that defence costs are for its account, with the exception of a conflict of interest, in which case the insured may elect to run its own defence.
That said, the law resolves who conducts and who pays, not which pot the money comes out of. That second question is decided by the policy wording, and it admits two opposite configurations:
- Costs inclusive: solicitors' and counsel's fees, expert reports and court bonds erode the capacity. Every euro of defence is a euro less available to pay damages.
- Costs in addition: the defence is paid separately and the capacity remains intact for the indemnity.
In long proceedings, with technical expert evidence and several instances, the difference between the two formulations can amount to a very material fraction of the limit purchased. It is one of those clauses that does not move the premium noticeably and completely changes the outcome. Review it alongside the usual exclusions in a liability policy: these are the two areas where the wording decides in silence.
What can be enforced against an injured third party?
Here the system of limits stops being an internal matter between insured and insurer.
Article 76 of Law 50/1980 grants the injured party a direct action against the insurer and declares that action immune to the defences the insurer may have against its insured. The insurer may, however, raise the injured party's exclusive fault and any personal defences against them. From there, each figure in the schedule fares differently:
- The limit of the sum insured is enforceable. It is not a defence of the insurer against its own insured: it defines the risk. STS 57/2024 of 18 January confirms this. The injured party cannot recover from the insurer beyond the capacity purchased.
- The sub-limit per victim receives the opposite treatment when it is not properly incorporated. STS 1581/2025 of 5 November classifies it as a limiting clause and holds it unenforceable if it fails to comply with article 3. Note the nuance: the Supreme Court does not say sub-limits are unlawful. They are perfectly valid. What it requires is that, because they cut back the risk rather than describe it, they be highlighted in a special manner and specifically accepted in writing.
- The deductible deserves an exact formulation, because this is where over-simplification is most common. The deductible takes full effect in the relationship between insured and insurer. Against a third party exercising the direct action, whether it is enforceable is disputed and depends on how the policy and the class of business are configured. In compulsory motor insurance it is not enforceable against the injured party. Any categorical statement either way is wrong.
The conceptual boundary was drawn by STS (First Chamber, Full Court) 853/2006 of 11 September: a clause is risk-defining (delimitadora) where it specifies which risk is covered, for what amount, over what period and in what territory; it is limiting (limitativa) where it restricts or conditions the insured's right once the risk has materialised. Only the latter are subject to the formalities of article 3. The distinction is a construct of Spanish case law with no direct equivalent elsewhere, and it decides which figures survive a dispute.
| Concept | What it does | Enforceable against an injured third party? | Where to look in your policy |
|---|---|---|---|
| Limit per claim | Maximum ceiling on each claim (art. 27 Insurance Contract Act) | Yes: it defines the risk (STS 57/2024) | Particular conditions, first line of the schedule of covers |
| Annual aggregate limit | Combined ceiling for all claims in the period | Yes, as a definition of the risk, for the same reason as the limit per claim | Particular conditions, next to the limit per claim |
| Sub-limit per section | Cuts back the capacity of a specific cover | Depends on how it is configured and incorporated into the contract | Sub-limits column of the schedule of covers |
| Sub-limit per victim | Caps what is payable to each injured party in the claim | Unenforceable if it fails article 3 of the Act (STS 1581/2025) | Schedule of covers and employers' liability wording |
| Deductible | Subtracts an amount from the base of each claim | Disputed; depends on configuration and class. In compulsory motor insurance, no | Deductibles line, by section, in the particular conditions |
| Defence costs and bonds | Erode the limit or sit in addition to it, as agreed | — (affects available capacity, not enforceability) | Legal defence clause, in the general and particular conditions |
We can read your schedule of covers and tell you which figure actually protects you in each scenario. Talk to our liability team.
The small print will not protect you if you are a large account
This is the point that changes the conversation in a board meeting.
The second paragraph of article 44 of Law 50/1980 provides that the mandate contained in article 2 of the Act shall not apply to insurance contracts covering large risks as defined in the Act. Translated: in large risks the Insurance Contract Act ceases to be mandatory law, and with it the formalities of article 3 fall away.
The consequence is direct. If your company exceeds the thresholds set by article 11 of Law 20/2015, the argument that "this clause was in small print and I did not specifically accept it in writing" loses its force. The Spanish Supreme Court has applied that criterion to the temporal delimitation of cover: in STS 545/2020 of 20 October it accepted that in large risks claims-made clauses are validly incorporated without the formalities of article 3 and are enforceable against third parties.
It is an uncomfortable asymmetry: the law protects the small company more firmly than the large account, because the latter is presumed to have bargaining power. That presumption either holds or it does not, and the wording shows which. For a large account the only real defence is the technical negotiation of the wording before signing: what is declared risk-defining, where the sub-limits fall, how defence costs and reinstatement are agreed. After the claim there is no room left.
When the insurer pays late
The system of limits determines how much is paid; article 20 of Law 50/1980 determines what happens if it is paid late.
The insurer falls into default if it does not perform within three months of the loss, or if it does not pay the minimum amount it may owe within forty days of the notification. The applicable rate is the statutory interest rate increased by 50% and, once two years have elapsed since the loss occurred, it may not be lower than 20% per annum.
Two points are frequently misquoted. First: that 20% is a floor that comes into play at two years, not the rate from day one. Second: there is no default where the failure to pay is for justified cause or is not attributable to the insurer, which in practice moves the argument onto whether the coverage dispute was reasonable.
The role of an independent broker
Two programmes with the same premium and the same main limit can leave opposite exposures depending on where the sub-limits fall, whether defence costs erode the capacity, and whether the aggregate reinstates. None of those three decisions shows up in a price comparison. As an independent brokerage registered with the Spanish DGSFP under reference J0140, we act on the client's mandate: we negotiate the wording with the market, not only the figure, and when a claim arises we represent the company before the insurer.
The employers' liability sub-limit is the textbook case of an inherited figure nobody revisited, and we deal with it in what employers' liability covers. To start from the full picture before going down to the numbers, types of company liability explains how the covers fit together, and our liability page summarises the scope of the cover.
Frequently asked questions
What is the difference between the limit per claim and the annual aggregate? The first is the ceiling on each claim, under article 27 of the Spanish Insurance Contract Act; the second is the combined ceiling for all claims in the period. "One million per claim and two million in the annual aggregate" does not mean two million is always available: it means two million for the whole year.
What is a sub-limit and why does it matter? A lower ceiling applying to a specific section or to each victim. It matters because it is the figure that fixes the real exposure on that type of claim; the main limit is irrelevant where the section triggered carries its own sub-limit.
Can the insurer enforce the deductible against me? The deductible takes full effect between insured and insurer. Against a third party exercising the direct action, whether it is enforceable is disputed and depends on the configuration of the policy and the class of business; in compulsory motor insurance it is not enforceable. The limit of the sum insured, by contrast, is.
Do defence costs erode the limit? It depends on what has been agreed. Article 74 of the Spanish Insurance Contract Act places conduct of the defence and the costs on the insurer unless otherwise agreed, but the wording decides whether those costs erode the capacity or sit in addition to it.
Does article 3 protect my company if it is a large account? Not necessarily. The second paragraph of article 44 removes large risks contracts from the mandatory character of the Act, so the formalities of article 3 do not operate. The protection lies in negotiating the wording beforehand, not in the law.
Sources and legislation
- Law 50/1980 of 8 October, the Spanish Insurance Contract Act: article 2 (mandatory character), article 3 (limiting clauses), article 20 (insurer's default interest), article 27 (sum insured), article 44, second paragraph (large risks), article 74 (conduct of the defence and defence costs) and article 76 (the injured party's direct action).
- Law 20/2015 on the organisation, supervision and solvency of insurance and reinsurance undertakings, article 11 (definition of large risks).
- Royal Decree 1027/2007, the Regulation on Thermal Installations in Buildings, article 37(c) (minimum liability cover for installation and maintenance firms).
- STS (First Chamber) 1581/2025 of 5 November (sub-limit per victim as a limiting clause).
- STS (First Chamber) 57/2024 of 18 January (enforceability of the sum insured against the injured party).
- STS (First Chamber) 545/2020 of 20 October (large risks and the formalities of article 3).
- STS (First Chamber, Full Court) 853/2006 of 11 September (distinction between risk-defining and limiting clauses).
This information is for guidance only and does not constitute binding advice. Cover, limits and exclusions are governed in all cases by the particular conditions of each policy. New Brokers Correduría de Seguros, S.L., registered with the Spanish DGSFP under reference J0140.
