10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- The Who Is An Insured section defines protected parties based on the named insured's business structure, including spouses of sole proprietors, partners, members, executive officers, and employees.
- Employees are insureds for acts within the scope of employment but not for injury to a fellow employee or to the named insured.
- Supplementary Payments are paid in addition to the applicable limit and do not erode the policy limits.
- Supplementary Payments include defense costs, up to $250 for bail bonds, the cost of appeal and release-of-attachment bonds, and post-judgment interest.
- The insurer covers pre-judgment interest only on the part of a judgment it pays, and post-judgment interest until it pays or tenders its limit.
Protection Follows the Business Structure
The Who Is An Insured section identifies the persons and organizations the CGL protects. The list flexes with the named insured's business form shown on the declarations.
| Named insured form | Who else is an insured |
|---|---|
| Sole proprietor (individual) | The named insured and the spouse, but only for the business |
| Partnership / joint venture | The partners and their spouses, for partnership business |
| Limited liability company (LLC) | The members (for business) and managers (for duties) |
| Corporation / organization | Executive officers and directors (for duties) and stockholders (for liability as stockholders) |
Employees and Volunteers
Employees and volunteer workers are insureds for acts within the scope of their duties. Two key limits apply:
- They are not insureds for bodily injury to a fellow employee or to the named insured.
- They are not covered for professional services rendered.
Trap: A newly acquired or formed organization is automatically an insured, but generally only for 90 days and not for past acts.
Under the CGL Who Is An Insured provision, when is an employee considered an insured?
Costs Paid On Top of the Limits
Supplementary Payments are amounts the insurer pays in addition to the applicable limit of insurance. This is critical: they do not erode the Each Occurrence, aggregate, or P&AI limits. They apply to claims the insurer defends under Coverage A or B.
| Supplementary Payment | Detail |
|---|---|
| Defense costs | Attorney fees and litigation expenses, in addition to limits |
| Bail bonds | Up to $250 for bonds due to a covered accident |
| Bonds to release attachments | Full cost, not just $250 |
| Appeal bonds | Cost of the bond, but no duty to apply for it |
| Reasonable expenses incurred by the insured | At the insurer's request, up to $250/day for lost earnings |
| Court costs taxed against the insured | The insured's taxed costs in the suit |
| Pre-judgment interest | Only on the portion of the judgment the insurer pays |
| Post-judgment interest | On the full judgment until the insurer pays or tenders its limit |
Trap: The bail-bond sublimit is only $250, but the insurer is not required to furnish the bond, only to pay up to that amount.
Worked Interest Example
A jury awards a claimant $1,200,000. The insured's CGL has a $1,000,000 Each Occurrence limit.
- The insurer pays its $1,000,000 limit toward the judgment.
- Pre-judgment interest is owed only on the $1,000,000 the insurer pays, not on the full award.
- Post-judgment interest accrues on the entire $1,200,000 until the insurer pays or tenders its $1,000,000 limit; after tender, the insurer's interest obligation stops.
- All of this interest, plus the defense attorney's fees, is on top of the $1,000,000 limit.
Why This Matters on the Exam
The defense-outside-the-limits feature distinguishes the CGL from many professional liability and umbrella forms, where defense erodes the limit. Knowing that supplementary payments sit outside the limit is a recurring test point.
- Defense costs: outside the limit (CGL).
- Bail bonds: $250 cap.
- Loss-of-earnings assistance: $250/day.
- Post-judgment interest: stops when the insurer tenders its limit.
Which statement about CGL Supplementary Payments is correct?
Two Terms That Are Not Synonyms
The exam draws a sharp line between the named insured and an insured.
| Term | Meaning | Rights |
|---|---|---|
| Named insured | The entity shown in the declarations | Receives notices, pays premium, can request cancellation |
| Insured | Anyone who qualifies under Who Is An Insured | Protected by the coverage but has fewer contractual rights |
The first named insured has special duties and rights: it receives cancellation and nonrenewal notices, is responsible for premium, and may act on behalf of all insureds.
Separation of Insureds
The CGL contains a separation of insureds condition: except for limits and certain duties, the coverage applies separately to each insured as though each held its own policy. This means one insured's conduct does not automatically void coverage for an innocent co-insured.
Worked scenario: Two partners share a CGL. Partner A intentionally injures a customer (excluded). Partner B, who had no involvement, may still be defended for vicarious-liability allegations because the policy applies separately to each insured. The named-insured framework determines who controls notices, while separation of insureds determines whose conduct defeats coverage.
Quick Review
- First named insured: gets notices, owes premium, acts for all.
- Separation of insureds: each insured treated as separately covered.
- Newly acquired entities: insured automatically, generally 90 days.
Reading the Supplementary Payments on the Exam
A reliable way to answer Supplementary Payments questions is to ask two things: Is this amount inside or outside the limit? and Is there a dollar cap? Defense fees, court costs, appeal-bond costs, and interest are all outside the limit with no cap. Only two items carry explicit caps: bail bonds at $250 and loss-of-earnings assistance at $250 per day.
Trap: The insurer's duty to defend, and therefore its duty to pay Supplementary Payments, ends once the limit is exhausted by paying judgments or settlements. After exhaustion, the insured must fund its own defense.