10.3 Who Is an Insured and Supplementary Payments

Who Is An Insured - By Entity Type

Section II - Who Is An Insured of the CGL automatically defines the insureds based on the form of business shown in the Declarations. You must match the entity type to the persons covered:

This is a high-yield exam table - know which related persons each structure pulls in automatically.

Employees, Volunteers, and Real Estate Managers

Beyond owners, the policy automatically extends to certain workers and agents:

• Employees and volunteer workers are insureds for acts within the scope of their employment or while performing duties related to the conduct of the business.
• Important exclusions for workers: an employee/volunteer is NOT an insured for (1) bodily injury to a fellow employee or the named insured, (2) injury arising from providing professional health-care services, or (3) damage to property owned by that employee.
• Real estate managers acting for the named insured are insureds.
• A person with temporary custody of a deceased insured's property is an insured until a legal representative is appointed.

Newly Acquired or Formed Organizations

When the named insured acquires or forms a new organization during the policy term, the CGL grants automatic coverage - but with important conditions:

• Coverage applies for 90 days from acquisition/formation, or the end of the policy period, whichever is earlier.
• It applies only if the named insured maintains ownership or majority interest.
• It does not apply to a partnership, joint venture, or LLC (those need to be scheduled).
• It does not cover BI/PD that occurred before the named insured acquired or formed the organization, nor offenses committed before that date.

Trap: the 90-day window means a corporate acquisition must be added to the policy promptly; a new partnership gets no automatic coverage at all.

Supplementary Payments - Section I

Supplementary Payments are extra benefits the insurer pays in addition to the limit of insurance - they do not reduce the limits available for damages. They include:

• All expenses the insurer incurs (including the full cost of defense/investigation).
• Up to $250 for the cost of bail bonds required because of an accident or traffic-law violation arising out of a covered vehicle's use.
• The cost of bonds to release attachments (within the applicable limit).
• All reasonable expenses incurred by the insured at the insurer's request, including up to $250 per day for loss of earnings to attend hearings or trials.
• All court costs taxed against the insured in the suit.
• Pre- and post-judgment interest on the entire judgment (post-judgment interest accrues until the insurer pays or tenders the limit).

Worked Numeric: Limits vs. Supplementary Payments

An insured has a $500,000 Each Occurrence limit. A covered suit results in a $500,000 judgment. The insurer also incurs $80,000 in defense costs, pays $250 bail, $1,500 for the insured's lost earnings to attend trial (6 days at $250), and $12,000 post-judgment interest.

Total insurer outlay: $593,750, even though the policy limit is only $500,000 - because supplementary payments sit on top of the limit. This is why defense-inside-the-limits 'eroding' policies (common in professional liability) are far less favorable to the insured.

Common Traps Summary

• A spouse is automatically an insured for an individual or partnership named insured, but think entity-by-entity - a corporation pulls in officers, directors, and stockholders, not spouses.
• Newly formed partnerships/LLCs get NO automatic 90-day coverage - only acquired/formed organizations the insured controls.
• Employees are not insured for injury to co-workers or the named insured - that is the employer's WC exposure.
• Supplementary bail and daily loss-of-earnings caps are $250 each in the current ISO edition - earlier editions used lower figures.
• Supplementary payments are outside the limit; damages (judgments/settlements) are inside the limit.

Separation of Insureds

The CGL contains a separation of insureds condition: except for the limits and certain duties, the insurance applies as if each named insured were the only insured and separately to each insured against whom a claim is made. This means one insured's wrongful act does not automatically void coverage for an innocent co-insured.

Practical effect: if employee A injures employee B, the fellow-employee exclusion bars B's claim against A under the CGL (it belongs in workers compensation). But if employee A's conduct injures a third-party customer, the separation-of-insureds rule lets the policy treat A as an insured for that liability. Candidates should not confuse the fellow-employee exclusion with a total bar on employee coverage - employees remain insureds for third-party harm within the scope of employment.