10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- Who Is an Insured depends on business structure: sole proprietors include the spouse; partnerships include partners and spouses; LLCs include members and managers; corporations include officers, directors, and stockholders within their duties.
- Employees and volunteer workers are insured for in-scope acts but NOT for injury to co-employees or to the named insured, professional health-care services, or damage to employee-owned property.
- Newly acquired or formed organizations are automatically insured for 90 days or until policy expiration, whichever is earlier.
- Supplementary Payments are paid in addition to (outside) the limits and include defense costs, court costs, $250 bail bonds, $250-per-day lost earnings, prejudgment interest on the insurer's share, and all postjudgment interest.
- The duty to defend and supplementary payments end once the applicable limit is exhausted by payment of judgments or settlements.
Who Is an Insured — Status Drives Coverage
The Who Is an Insured section of CG 00 01 determines who gets protection, and the answer depends on the named insured's business structure shown in the declarations. The exam routinely tests which spouses, partners, members, and employees are automatically insured.
| Named insured type | Automatically insured |
|---|---|
| Individual (sole proprietor) | The individual and the spouse, but only for the conduct of the named business |
| Partnership / joint venture | The partnership and its partners and their spouses, for business conduct |
| LLC | The LLC, its members (for business conduct) and its managers (only as managers) |
| Corporation | The corporation, its stockholders, executive officers, and directors (within duties) |
| Trust | The trust and its trustees (only as trustees) |
Employees, Volunteers, and Newly Acquired Entities
Beyond the owners, the CGL automatically extends insured status to:
- Employees and volunteer workers — insured for acts within the scope of employment/duties, but NOT for: (a) bodily injury to a fellow employee or to the named insured, (b) injury arising from professional health-care services (unless the named insured is in that business), or (c) damage to property owned by, occupied by, or loaned to the employee.
- Real estate managers (persons or organizations) acting on the insured's behalf.
- Newly acquired or formed organizations — covered automatically for 90 days or until policy expiration, whichever is earlier, provided the named insured maintains majority ownership. This 90-day window is a classic exam fact.
Trap: an employee who injures a co-worker is not an insured for that claim — co-employee bodily injury is excluded from employee insured status.
Supplementary Payments — Paid IN ADDITION to the Limits
Supplementary Payments are amounts the insurer pays on top of (outside) the limits of insurance when it defends a suit. Because they are outside the limit, they do not reduce the money available to pay the claimant. The CGL lists:
- All expenses the insurer incurs (defense costs, investigation).
- Up to $250 for bail bonds for a covered accident (the form does not require the insurer to furnish the bond).
- The cost of bonds to release attachments, up to the applicable limit of insurance.
- 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 (but not pre/post-judgment interest already in the judgment beyond the rules below).
- Prejudgment interest on the part of the judgment the insurer pays, and all postjudgment interest that accrues after entry of judgment.
The Two Dollar Amounts and a Defense-Cost Trap
Memorize the two recurring $250 figures, which the exam swaps to trick you:
| Supplementary Payment | Stated limit |
|---|---|
| Bail bonds | $250 per bond |
| Loss of earnings (insured's lost wages to assist defense) | $250 per day |
A worked example: A covered suit results in a $900,000 judgment against an insured carrying a $1,000,000 Each Occurrence limit. The insurer also spends $120,000 in defense costs and $30,000 in postjudgment interest. Because defense and interest are Supplementary Payments paid outside the limit, the insurer pays $900,000 + $120,000 + $30,000 = $1,050,000 total — even though the limit is only $1,000,000. The limit caps damages, not the supplementary payments.
When the Duty to Defend Ends
The insurer's duty to defend ends when it has used up the applicable limit in the payment of judgments or settlements. This is critical: once the Each Occurrence or aggregate limit is exhausted by damages, the insurer can withdraw from the defense, and supplementary payments stop. The exam contrasts this with the CGL rule that supplementary payments are otherwise unlimited in amount (except the two $250 caps) for as long as the duty to defend continues.
Also remember: an indemnitee (a party the insured agreed to defend under an insured contract) may have its defense costs treated as supplementary payments when specific conditions are met, but the standard analysis on the exam is that defense is outside the limits until the limit is exhausted by damages.
A jury awards $900,000 against an insured with a $1,000,000 Each Occurrence limit. The insurer incurs $150,000 in defense costs and $40,000 in postjudgment interest. What does the insurer pay in total?
Under the CGL Who Is an Insured provision, a newly acquired organization in which the named insured holds majority ownership is automatically covered for how long?
Additional Insureds Are Added by Endorsement, Not Automatically
The Who Is an Insured section adds owners and employees automatically, but third parties such as landlords, lenders, and general contractors must be added by endorsement — they are not automatic insureds. The most common are the CG 20 10 (additional insured — owners, lessees, or contractors, for ongoing operations) and CG 20 37 (the same parties for completed operations). A general contractor that requires "additional insured status including completed operations" on a sub's policy needs both forms, because CG 20 10 alone stops at ongoing operations.
Exam trap: a certificate of insurance does not confer additional insured status. Only the endorsement amends the policy; the certificate is merely evidence. If the fact pattern shows a certificate but no endorsement, the third party is not an insured.
Separation of Insureds and Other Insurance
The CGL contains a Separation of Insureds condition: except for the limits of insurance and any rights/duties of the first named insured, the policy applies as if each named insured were the only insured and separately to each insured against whom a claim is made. This is why one insured can sometimes sue or make a claim that another insured triggers — the policy is read separately for each. It does not increase the limits, which remain shared.
When another policy also covers a loss, the CGL Other Insurance condition decides how they share. The CGL is generally primary, but becomes excess in specific situations (e.g., where the insured is an additional insured on another policy, or for property damage to premises while rented for fewer than seven days). When two primary policies overlap, they share by equal shares until one exhausts, then the other continues — or by limits if a policy will not contribute equally.