Define the term liability limits in commercial insurance policies.

Liability limits in commercial insurance policies refer to the maximum amount that an insurer is obligated to pay for claims made against the insured under a specific coverage. This limit delineates the insurer's exposure to risk and represents the cap on payouts for damages or injuries that arise from the insured's business operations, leaving the insured to cover any costs that exceed that limit.

For example, if a business has a liability limit of $1 million and faces a claim for $1.5 million, the insurer would only pay up to $1 million, and the business would be responsible for the remaining $500,000. Understanding this concept is vital for businesses to ensure they have adequate coverage in place to protect their financial interests and manage risk effectively.