5.3 Supplementary Payments for Coverages A and B
Key Takeaways
Supplementary Payments apply exclusively to Coverage A (Bodily Injury and Property Damage) and Coverage B (Personal and Advertising Injury); they do not apply to Coverage C Medical Payments.
All Supplementary Payments are paid in addition to the policy's limits of insurance (outside policy limits) and do not erode the occurrence or aggregate limits, except where specific bond caps apply.
Supplementary Payments cover seven specific categories: insurer litigation expenses, bail bonds up to $250, release of attachment bonds within policy limits, insured's expenses including up to $250 per day in lost earnings, taxed court costs, pre-judgment interest, and post-judgment interest.
The insurer's duty to defend and pay supplementary payments terminates immediately upon exhaustion of the applicable limit of insurance through the payment of judgments or settlements.
An insurer will defend an indemnitee of the insured outside policy limits under Supplementary Payments only if all six strict contractual, operational, and non-conflict criteria are fully satisfied.
5.3 Supplementary Payments for Coverages A and B
Quick Summary: In commercial casualty litigation, defending a lawsuit often costs tens or hundreds of thousands of dollars before a single dollar of indemnity is awarded. Under Section I of the ISO CGL form (CG 00 01), the Supplementary Payments section provides vital ancillary financial protections that the insurer pays in addition to the policy limits (outside policy limits). These payments apply exclusively to claims and suits defended under Coverage A and Coverage B; they do not apply to Coverage C. The policy itemizes seven specific supplementary payments, including full insurer litigation expenses, bail bonds up to $250, attachment bonds, insured expenses including up to $250 per day for lost earnings, taxed court costs, and pre- and post-judgment interest. Furthermore, Supplementary Payments establishes a rigorous six-part framework under which the insurer will defend an insured's contractual indemnitee outside policy limits.
Structural Placement and the "Outside Policy Limits" Principle
Supplementary Payments is located immediately following Coverage C in Section I of the standard ISO CGL policy form (CG 00 01). Its most fundamental commercial attribute is that all payments are made in addition to the applicable limits of insurance (commonly described as being paid "outside policy limits").
For example, if an insured business carries a $1,000,000 Each Occurrence Limit and faces a severe bodily injury lawsuit, the insurer might expend $280,000 on legal defense attorneys, expert witnesses, accident reconstruction, and court costs. If the court ultimately awards the plaintiff $900,000 in damages, the $280,000 defense expenditure does not reduce the $1,000,000 occurrence limit. The insurer pays the entire $280,000 under Supplementary Payments and also pays the full $900,000 judgment under Coverage A, resulting in a total insurer disbursement of $1,180,000.
Critical Structural Constraints
- Applies Only to Coverages A and B: Supplementary Payments applies exclusively to claims investigated or settled, and suits defended, under Coverage A (Bodily Injury and Property Damage) and Coverage B (Personal and Advertising Injury). There are no supplementary payments for Coverage C Medical Payments, because Coverage C involves no legal defense or formal lawsuit.
- Termination of the Insurer's Duty: The insurer's obligation to defend the insured and pay supplementary payments ceases immediately once the applicable limit of insurance has been exhausted in the payment of judgments or settlements under Coverage A or Coverage B. Simply offering or depositing the policy limit into court ("tendering limits") without resolving the lawsuit does not relieve the insurer of its defense obligation; the limits must be paid in actual judgment satisfaction or bona fide settlement that releases the insured from liability.
Complete Itemization of the Seven Supplementary Payments
The standard ISO CG 00 01 policy guarantees payment for seven distinct categories of expenses:
1. All Expenses Incurred by the Insurer
The insurer pays all costs it incurs in investigating, settling, or defending a claim or suit. This encompasses defense attorney legal fees, independent claims adjuster retainers, private investigator fees, expert witness retainers, forensic accident reconstructionists, deposition videography, court stenography, and trial exhibits. Legal defense costs under this item routinely represent the largest monetary disbursement under Supplementary Payments.
2. Cost of Bail Bonds (Up to $250)
The insurer pays up to $250 for the cost of bail bonds required because of accidents or traffic law violations arising out of the use of any vehicle to which the Coverage A Bodily Injury liability coverage applies. For instance, if an employee is operating covered mobile equipment along a public roadway and is involved in an accident resulting in a traffic citation and arrest, the policy covers the bail bond premium up to $250. Key Limitation: The insurer is under no legal obligation to apply for or furnish the bail bond itself; it merely reimburses or pays the cost of the bond up to $250.
3. Cost of Bonds to Release Attachments
During commercial litigation, a plaintiff may obtain a pre-judgment writ of attachment from a court, freezing the insured defendant's commercial bank accounts, machinery, or real property to ensure assets remain available to satisfy a potential judgment. To lift the attachment and maintain business operations, the insured must post a release of attachment bond. The insurer pays the bond premium, but only for bond amounts within the applicable limit of insurance. The insurer is not required to furnish the bond.
4. Insured's Expenses and Loss of Earnings (Up to $250 a Day)
The insurer reimburses all reasonable expenses incurred by the insured at the insurer's request to assist in the investigation or defense of a claim or suit. This includes travel expenses, lodging, parking, and documentation copying costs. Crucially, this provision covers actual loss of earnings up to $250 a day because of time off from work (e.g., attending depositions, mediations, or trial testimony). For example, if a business owner earns $500 per day and misses five full work days at the insurer's request to testify at trial, the policy reimburses $1,250 (5 days × $250 limit), with the remaining $1,250 absorbed by the owner.
5. Court Costs Taxed Against the Insured
The insurer pays all court costs taxed against the insured in the suit. In civil litigation, the prevailing party is customarily awarded taxable court costs by statute, including court clerk filing fees, statutory witness subpoena fees, jury fees, and court administrative assessments. Crucial Exam Distinction: The CG 00 01 04 13 wording states that these payments do not include attorneys' fees or attorneys' expenses taxed against the insured. A fee-shifting award to the plaintiff's lawyers is therefore not a supplementary payment, even where local procedure labels it a cost.
6. Pre-Judgment Interest
The insurer pays pre-judgment interest awarded against the insured on that part of the judgment the insurer pays. Many jurisdictions assess pre-judgment interest from the date of the injury or lawsuit filing to the date judgment is entered to compensate the plaintiff for delay. The insurer pays this interest on the portion of the judgment within its policy limit. However, if the insurer makes an offer to pay the applicable limit of insurance, it does not pay any pre-judgment interest that accrues after the date of that offer.
7. Post-Judgment Interest
The insurer pays all interest on the full amount of any judgment that accrues after entry of the judgment and before the insurer has paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance. Post-judgment interest continues to accrue during appeals until the insurer formally tenders its policy limit.
| Supplementary Payment Item | Coverage Scope | Monetary Limitation |
|---|---|---|
| Insurer Defense Expenses | Attorney fees, expert witnesses, depositions, investigation | Unlimited; paid in full outside policy limits |
| Bail Bond Costs | Accidents/traffic violations from covered vehicle use | Up to $250; insurer not required to furnish bond |
| Release of Attachment Bonds | Premium to lift property attachments | Paid within applicable policy limit of insurance |
| Insured's Out-of-Pocket Expenses | Reasonable travel and lodging requested by insurer | Actual reasonable expenses reimbursed in full |
| Insured's Loss of Earnings | Time off work to assist in defense / attend trial | Up to $250 per day for actual lost earnings |
| Taxed Court Costs | Statutory court filing fees, jury fees, subpoena fees | Paid in full outside limits (excludes attorneys' fees and expenses taxed against the insured) |
| Pre-Judgment Interest | Interest on that part of judgment paid by insurer | Ceases accruing upon offer of policy limit |
| Post-Judgment Interest | Interest accruing after judgment entry | Accrues on full judgment until insurer pays/tenders limit |
Defense of Indemnitees: The Six-Part Test
In commercial business contracts (such as construction subcontracts or commercial property leases), a downstream contractor or tenant frequently agrees in an "insured contract" to indemnify and hold harmless an upstream party (the indemnitee, such as a general contractor or building owner). When a third-party injury occurs, the plaintiff often names both the insured and the indemnitee in the lawsuit.
Under Coverage A, contractual liability assumed under an "insured contract" is covered as damages, meaning any defense costs paid on behalf of the indemnitee would ordinarily be treated as indemnity damages that erode the insured's limit of insurance. However, the CGL Supplementary Payments section permits the insurer to defend the indemnitee directly outside policy limits (without eroding the insured's limits), provided all six of the following conditions are satisfied:
- Insured Contract Requirement: The suit against the indemnitee seeks damages for which the insured has assumed the indemnitee's liability in an "insured contract."
- Insurance Applies: The insurance afforded by the CGL policy applies to the liability assumed by the named insured.
- Defense Obligation Assumed: The obligation to defend the indemnitee, or the cost of that indemnitee's defense, was also assumed by the insured in the same "insured contract."
- No Conflict of Interest: Based on the allegations in the suit and other information known to the insurer, no conflict of interest appears to exist between the interests of the insured and the interests of the indemnitee.
- Conduct and Control of Defense: Both the indemnitee and the named insured ask the insurer to conduct and control the defense, and mutually agree that the insurer may assign the same legal counsel to defend both parties.
- Written Agreement and Authorization by Indemnitee: The indemnitee (a) agrees in writing to cooperate in the investigation, settlement, or defense of the suit; immediately send the insurer copies of any demands, notices, summonses, or legal papers; notify any other insurer whose coverage is available to the indemnitee; and cooperate in coordinating other applicable insurance; and (b) gives the insurer written authorization to obtain records and other information related to the suit and to conduct and control the indemnitee's defense.
The insurer's obligation to defend the indemnitee as a supplementary payment ends when the applicable limit is used up in the payment of judgments or settlements, or when these conditions or the indemnitee's written agreement are no longer met.
The Financial Impact of Failing the Six-Part Test: If any one of these six conditions is not satisfied—for example, if a conflict of interest emerges between the general contractor and subcontractor, or if the general contractor insists on retaining independent legal counsel—the insurer will not defend the indemnitee under Supplementary Payments. Instead, any defense costs incurred by the indemnitee are paid only as indemnity damages under Coverage A, eroding the named insured's policy limits.
A commercial policyholder carrying a CGL policy with a $1,000,000 Each Occurrence Limit and a $2,000,000 General Aggregate Limit is sued for $800,000 in bodily injury damages under Coverage A. The insurer spends $175,000 retaining defense counsel, hiring biomechanical expert witnesses, and paying deposition court reporters. Ultimately, the jury awards the plaintiff $600,000. How are the $175,000 defense expenses handled under the policy?
The defense expenses are deducted from the $600,000 settlement, leaving the plaintiff with $425,000 in net indemnity.
The defense expenses are paid under Supplementary Payments in addition to the policy limits, leaving the entire $1,000,000 Each Occurrence Limit available to satisfy the $600,000 judgment.
The defense expenses are paid under Coverage C Medical Payments, reducing the General Aggregate Limit to $1,825,000.
The defense expenses reduce the Each Occurrence Limit dollar-for-dollar, leaving only $825,000 in remaining coverage for the judgment.
The sole proprietor of an insured heating and air conditioning company is requested by the CGL insurer to attend five full days of trial testimony and three full days of court-ordered settlement conferences to assist defense counsel in a major commercial property damage lawsuit. The proprietor proves actual business earnings losses of $400 per day during these eight days away from work. Under the Supplementary Payments section of the CGL policy, what total amount is payable to the proprietor for lost earnings?
$0, because loss of earnings is an uninsurable indirect business interruption expense.
$1,250, reflecting a lifetime policy cap of five days of lost earnings.
$3,200, representing the proprietor's full actual lost earnings of $400 per day for all eight days.
$2,000, representing the maximum daily supplementary payment limit of $250 per day for eight days.
A general contractor requires an electrical subcontractor to sign a trade agreement containing an 'insured contract' indemnification clause and an express promise to defend the general contractor. A job-site injury results in a lawsuit naming both parties. Under which circumstance will the subcontractor's CGL insurer provide a direct legal defense to the general contractor under Supplementary Payments (outside policy limits), rather than treating defense expenses as indemnity damages under Coverage A?
Only if all six specific policy criteria are met, including no conflict of interest, mutual agreement to use the same defense counsel, and written cooperation agreements from the indemnitee.
Whenever the contract between the parties contains the phrase 'hold harmless and defend,' without any additional policy conditions.
Only if the general contractor waives its own commercial liability insurance and agrees to pay half of the insurer's legal retainers.
Whenever the bodily injury claim exceeds the subcontractor's Each Occurrence limit and enters umbrella coverage.
Sections you finish are checked off in the contents.