10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- Who Is an Insured varies by entity: sole proprietor (and spouse), partnership/LLC members, and corporate officers/directors/stockholders each gain automatic status for business activities.
- Employees and volunteers are insureds for work within their duties but not for injury to co-employees or the named insured, nor for damage to property in their care.
- Newly acquired organizations are automatic insureds only until policy end or 90 days, whichever is earlier; additional insureds require an endorsement.
- Supplementary Payments (including defense costs, $250 bail bonds, $250/day lost earnings, court costs, interest) are paid in addition to the limit and do not erode it.
Who Is an Insured
The CGL Section II - Who Is an Insured provision determines who receives protection beyond the named insured shown on the declarations. The scope depends on the business structure of the named insured. This is frequently tested because automatic insured status varies by entity type.
| Named insured type | Automatic insureds added |
|---|---|
| Individual (sole proprietor) | The individual and spouse, but only for the business |
| Partnership / joint venture | Partners/members and their spouses, business conduct only |
| LLC | Members (as to business) and managers (as to duties) |
| Corporation | Executive officers and directors (acts within duties); stockholders (liability as stockholders) |
In all cases, employees and volunteer workers are insureds for acts within the scope of employment or duties for the named insured, but with important limits.
Employee and Other Insured Limitations
Employees and volunteer workers are not insureds for:
- Bodily injury or personal/advertising injury to a fellow employee (the co-employee exclusion), or to the named insured, partners, or members;
- Property damage to property owned, occupied, used by, or in the care, custody, or control of that employee or the named insured.
Newly acquired or formed organizations are automatically insureds, but only until the end of the policy period or 90 days after acquisition, whichever is earlier, and the coverage does not apply to injury before the entity was acquired. This 90-day window is a classic exam fact.
Additional insureds (landlords, vendors, contracting parties) are added only by endorsement, never automatically, and only to the extent the endorsement provides.
Supplementary Payments
Supplementary Payments - Coverages A and B are amounts the insurer agrees to pay in addition to the applicable limit of insurance. Because they are paid on top of the limits, they do not erode the Each Occurrence Limit or aggregates. Standard supplementary payments include:
- All expenses the insurer incurs (including defense costs - the duty to defend is in addition to the limit).
- Up to $250 for the cost of bail bonds required because of an accident or traffic-law violation arising out of a covered vehicle (the insurer is not obligated to furnish the bond).
- The cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance.
- All reasonable expenses incurred by the insured at the insurer's request, including up to $250 a day for loss of earnings because of time off from work.
- All court costs taxed against the insured, and pre-judgment interest awarded on the part of the judgment the insurer pays, plus all interest accruing after judgment entry.
Worked Example: Defense Costs Are Additional
A business has a $1,000,000 Each Occurrence Limit. A covered claim settles for the full $1,000,000, and the insurer incurred $180,000 in defense attorney fees plus $3,000 in court costs and post-judgment interest. Because defense and supplementary payments are paid in addition to the limit, the insurer pays $1,000,000 (indemnity) + $180,000 + $3,000 = $1,183,000 total.
Contrast this with a defense-within-limits (eroding/wasting) provision found in some professional liability forms, where defense costs would reduce the $1,000,000 available for indemnity. The standard CGL does not wear away limits with defense costs - a key reason the CGL is a broad-coverage form. The insurer's duty to defend ends once it has paid out the applicable limit in settlements or judgments.
A newly acquired organization is automatically an insured under the CGL for how long?
A covered CGL claim settles for the full $1,000,000 Each Occurrence Limit, and the insurer spent $150,000 defending the claim. How much does the insurer pay in total?
The 'Who Is an Insured' Hierarchy
The CGL automatically insures the named insured and, depending on its form of organization: an individual's spouse for business conduct; partners and their spouses (partnership); members and managers (LLC); and executive officers, directors, and stockholders of a corporation for their corporate duties. Employees and volunteer workers are insureds for acts within the scope of employment/duties — but not for bodily injury to a co-employee or the named insured, nor for damage to the employer's property. Newly acquired or formed organizations are automatically insureds for up to 90 days (or policy end, if sooner).
Supplementary Payments Paid in Addition to Limits
Supplementary payments are paid on top of the limit of insurance and include: all defense costs and expenses the insurer incurs; up to $250 for bail bonds; the cost of appeal and release-of-attachment bonds (the insurer need not furnish them); all interest on the full judgment accruing after entry until the insurer pays/tenders its limit; pre-judgment interest on the covered portion; up to $250 per day for the insured's lost earnings while assisting in defense; and other reasonable expenses incurred at the insurer's request.
Because these are outside the limit, a full-limit settlement still leaves defense costs fully funded.
Worked Example: Why Defense Costs Are Additional
A covered claim settles for the full $1,000,000 Each Occurrence limit, and the insurer spent $180,000 defending the suit plus $15,000 in post-judgment interest. Because defense and supplementary payments are outside the limit, the insurer pays $1,000,000 + $180,000 + $15,000 = $1,195,000 in total. The insured's $1,000,000 limit is not eroded by defense. Contrast this with a defense-within-limits (eroding/'burning-limits') professional liability form, where every defense dollar reduces the amount left to pay the judgment.