10.3 Who Is an Insured and Supplementary Payments

Who Is an Insured

The Who Is an Insured section of CG 00 01 04 13 names the named insured in the Declarations and then automatically extends insured status to certain persons and organizations based on the named insured's legal form. Reading this section correctly is essential because automatic insureds get coverage without an endorsement, while everyone else (independent contractors, subcontractors, additional insureds) requires one.

Automatic Insureds by Business Form

Across all forms, the policy also makes insureds of:

• Employees and volunteer workers for acts within the scope of their duties (employees are not insured for injury to fellow employees, to the named insured, or for property they own/rent/control).
• Real estate managers acting for the named insured.
• A legal representative (e.g., executor) if the named insured dies, with respect to the insured's duties.
• Newly acquired or formed organizations the named insured owns more than 50% of — covered automatically for up to 90 days or to the end of the policy period, whichever is earlier.

Who Is an Insured Under the CGL

The CGL "Who Is An Insured" provision automatically extends coverage beyond the named insured based on the named insured's business form:

• Individual — the named insured and spouse (for business conduct).
• Partnership/Joint Venture — the partnership, plus partners and their spouses for business activities.
• LLC — the LLC, plus members (for conduct of the business) and managers (for their duties).
• Corporation/Other Organization — the entity, plus executive officers, directors, and stockholders for their duties.

In every case, employees and volunteer workers are insureds for acts within the scope of their employment or duties — but not for BI to a fellow employee or to the named insured, for PD to property the named insured owns/controls, or for professional services. Newly acquired or formed organizations are automatically insured for a window (commonly 90 days). Real estate managers acting for the insured are also covered.

Supplementary Payments

The CGL's Supplementary Payments are amounts the insurer pays in addition to the limits of insurance when it defends a covered suit — they do not erode the per-occurrence or aggregate limits. The exam expects familiarity with the standard list:

• All defense costs and expenses the insurer incurs.
• The cost of bonds to release attachments (up to the policy limit) and appeal bonds — the insurer pays the premium for the bond but is not obligated to furnish/apply for it.
• Reasonable expenses the insured incurs at the insurer's request to assist in the defense, including up to $250 per day for lost earnings.
• All court costs taxed against the insured (but not the post-judgment interest calculation on the part of a judgment exceeding the limit beyond what the form states).
• Pre-judgment interest on the covered portion of a judgment and post-judgment interest that accrues after entry of judgment until the insurer pays/tenders its limit.

The key exam idea is that supplementary payments and defense costs sit outside the limits, so a policy with a $1,000,000 limit can pay considerably more than $1,000,000 once defense and supplementary payments are added — until the limit is exhausted by judgments/settlements, which then ends the duty to defend.

Who Is NOT an Automatic Insured

The most common exam distractors are persons who must be added by endorsement:

• Independent contractors and subcontractors — they carry their own CGL.
• Additional insureds — landlords, lenders, project owners, and the like require an additional-insured endorsement such as CG 20 10 (ongoing operations) or CG 20 37 (completed operations).
• Newly acquired organizations after the 90-day window without specific endorsement.

Trap: A subcontractor is never an automatic insured under the general contractor's CGL merely because they work on the same project. Coverage flows the other way only when the general contractor is named as an additional insured on the subcontractor's policy.

The Two Insurer Duties

1. Duty to defend — the insurer provides and pays for legal defense even if the suit is groundless, false, or fraudulent. Defense is broader than indemnity: it is triggered if any allegation in the complaint could be covered. The duty ends when the applicable limit is exhausted by payment of judgments or settlements.
2. Duty to indemnify — pay damages the insured is legally liable for, within the limits.

Memory hook: defense is unlimited in dollars while the limit lasts but stops the moment the limit is exhausted.

Supplementary Payments (Paid IN ADDITION To Limits)

Supplementary Payments are paid in addition to the Limits of Insurance, so they do not reduce the amount available to pay judgments. This is one of the most heavily tested points in the chapter.

Worked example: A jury returns a $1,000,000 judgment against an insured whose Each Occurrence Limit is exactly $1,000,000. Defense costs of $120,000, a $250 bail bond, $1,250 in the insured's lost earnings (5 days at $250), and $30,000 of post-judgment interest are all supplementary — the insurer pays the full $1,000,000 judgment plus the $151,500 of supplementary payments. Because supplementary payments sit outside the limit, the insured's $1,000,000 of indemnity protection is not eroded by defense and interest.

Why the Distinction Matters

If defense and interest came out of the limit, a large defense bill could leave little money for the claimant's actual damages. By placing them outside the limit, the CGL preserves the full Each Occurrence and Aggregate amounts for indemnity. Contrast this with many professional liability (claims-made) forms, where defense costs are inside the limit and erode it — a classic compare-and-contrast question.