10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- Who Is An Insured extends status by business form: sole proprietor and spouse, partners/members and spouses, LLC members and managers, corporate officers and directors.
- Employees and volunteer workers are insureds for business-scope acts but not for injury to co-employees, the named insured, or professional services.
- Newly acquired or formed organizations get automatic coverage for 90 days or until policy expiration, whichever is earlier.
- Supplementary Payments (defense costs, court costs, bail bonds up to $250, post-judgment interest) are paid IN ADDITION to the limits and do not erode them.
Who Is an Insured — By Entity Type
The CG 00 01 Section II — Who Is An Insured automatically extends the named insured status to related persons based on the form of business shown in the Declarations. Memorize the pattern:
| Named insured form | Automatic insureds |
|---|---|
| Individual (sole proprietor) | The individual and their spouse, but only for the business |
| Partnership / joint venture | The partnership and its members, partners, and their spouses (business acts only) |
| LLC | The LLC, its members (as members) and managers (as managers) |
| Corporation | The corporation, its stockholders (liability as stockholders), and executive officers and directors (their duties only) |
| Trust | The trust and its trustees (as trustees) |
Across all forms, status applies only for acts within the scope of the relationship to the business. A partner sued for a purely personal car accident is not an insured for that loss.
Employees, Volunteers, and Newly Acquired Organizations
Beyond the named-insured forms, the CGL automatically extends insured status to:
- Volunteer workers — only while performing duties related to the insured's business; and
- Employees (other than executive officers) — for acts within the scope of employment or while performing duties related to the business.
Important employee carve-outs (tested traps): employees are not insureds for bodily injury to another employee or to a fellow co-employee (the comp lane), for injury to the named insured, or for liability arising from professional services. The CGL also gives automatic coverage for newly acquired or formed organizations — but only for 90 days or until the end of the policy period, whichever is earlier, and not if another similar policy applies.
Supplementary Payments — Paid IN ADDITION to Limits
Supplementary Payments are amounts the insurer pays in addition to the applicable limit of insurance — they do not erode the Each Occurrence Limit or the aggregates. This is one of the most tested CGL points. The standard list includes:
- All expenses the insurer incurs (defense costs are generally outside the limits in a CGL);
- Up to $250 for the cost of bail bonds required because of an accident or violation arising out of a covered vehicle;
- The cost of bonds to release attachments within the limit of insurance;
- All reasonable expenses the insured incurs at the insurer's request, including up to $250 per day for lost earnings;
- All court costs taxed against the insured (not the damages award itself);
- Pre-judgment interest awarded against the insured on the part of the judgment the insurer pays; and
- All post-judgment interest that accrues after entry of judgment.
Defense, the Eroding-Limit Trap, and a Worked Numeric
Under the CGL, the duty to defend ends when the insurer has used up the applicable limit paying judgments or settlements — defense itself is a supplementary payment outside the limits, but the insurer is not obligated to keep defending once the limit is exhausted by indemnity payments. Contrast this with many professional liability (claims-made) policies, where defense costs are inside the limit and erode it.
Worked example: A judgment awards $900,000 in damages plus $40,000 in court costs and $15,000 in post-judgment interest. The CGL Each Occurrence Limit is $1,000,000. The insurer pays the $900,000 damages from the limit, then pays the $40,000 court costs and $15,000 interest as Supplementary Payments on top of the limit — total insurer outlay $955,000, of which only $900,000 counts against the limit, leaving $100,000 of limit intact.
A CGL judgment is $900,000 in damages plus $40,000 court costs and $15,000 post-judgment interest. The Each Occurrence Limit is $1,000,000. How are the court costs and interest treated?
Under the CGL Who Is An Insured provision, for how long is a newly acquired or formed organization automatically covered?
Who Is an Insured by Entity Type
The CGL defines insureds according to the named insured's business form. If the named insured is an individual, the insured includes that person and a spouse for business conduct. If a partnership or joint venture, the partners and their spouses are insureds for the conduct of the business. If a limited liability company, the members (for business conduct) and managers (as to their duties) are insureds. If a corporation or other organization, the executive officers and directors (as to their duties) and stockholders (as to their liability as stockholders) are insureds. Matching the entity type to the right insureds is a frequent exam task.
Employees, Volunteers, and Newly Acquired Organizations
Employees and volunteer workers are insureds for acts within the scope of their employment or duties, but not for bodily injury to a co-employee or to the named insured, nor for damage to the employer's property; this preserves the workers compensation system's role. Newly acquired or formed organizations are automatically insureds for up to 90 days (or the end of the policy period, whichever is first), unless another policy covers them, giving the insured a window to add new entities. The co-employee and employer-property exclusions are recurring exam points.
Supplementary Payments Paid in Addition to the Limits
The CGL pays supplementary amounts on top of the limits: all defense costs; up to a stated amount for bail bonds; the cost of bonds to release attachments within the limit; reasonable expenses the insured incurs at the insurer's request, including up to a daily amount for lost earnings; costs taxed against the insured in the suit; pre- and post-judgment interest; and, under certain conditions, the cost to defend an indemnitee under an insured contract. Because these are outside the limit, the insurer's total outlay on a claim can substantially exceed the per-occurrence limit.
The Eroding-Limit Trap and a Worked Numeric
In the standard CGL, defense costs do not erode the limit; an insurer that spends 200,000 dollars defending a claim and then pays a 1,000,000-dollar judgment has paid 1,200,000 dollars total, because defense is supplementary. This contrasts sharply with many claims-made professional liability and D&O forms, where defense costs are inside the limit and reduce the amount available to pay a judgment (a defense-within-limits or eroding/wasting limit).
A scenario asking how much remains to pay a settlement after heavy defense spending is testing whether you know that CGL defense is outside the limit while many professional forms are defense-within-limits.