10.3 Who Is an Insured and Supplementary Payments

Section II - Who Is an Insured

The CGL's Who Is an Insured provision (Section II of CG 00 01 04 13) defines exactly which persons and organizations the policy protects. The list depends on how the named insured is organized on the declarations. The exam tests these distinctions because coverage runs to the status of a person, not merely to their name.

In all cases, employees and volunteer workers are insureds for acts within the scope of their employment or duties — but with critical limits described below.

Employees, Volunteers, and Newly Acquired Organizations

Employees and volunteer workers are insureds, but coverage does NOT apply to:

• Bodily injury or P&AI to a fellow employee or to the named insured (the co-employee exclusion).
• Liability arising from rendering or failing to render professional health-care services (except certain incidental first aid).
• Property damage to property the employee owns, occupies, rents, or controls.

Newly acquired or formed organizations receive automatic coverage as a named insured, but only:

1. For 90 days after acquisition or formation, or until the policy period ends, whichever is earlier; and
2. If the named insured maintains majority ownership/control; and
3. The coverage does not apply to BI/PD that occurred before acquisition, and Coverage B offenses committed before acquisition are likewise excluded.

Partnerships and joint ventures the named insured did not declare are not insureds.

Additional Insureds vs. Named Insureds

The exam distinguishes the named insured (shown on the declarations, who pays premium and receives notices) from an additional insured (added by endorsement, with coverage limited to a specified relationship). Common additional-insured endorsements include:

• CG 20 10 - additional insured, owners/lessees/contractors (ongoing operations).
• CG 20 37 - additional insured for completed operations.
• CG 20 11 - managers or lessors of premises.

An additional insured generally gets only the coverage required by contract, never broader than the named insured's own policy, and the endorsement may cap the limit at the lesser of the policy limit or the amount required in the contract. A named insured can cancel and adjust the policy; an additional insured cannot. Vicarious-liability-only forms protect the upstream party only for the named insured's acts, not the additional insured's sole negligence.

Supplementary Payments - Coverages A and B

Supplementary Payments are amounts the insurer pays in addition to the applicable limit of insurance when it defends a covered claim. Because they are paid on top of the limits, they do not erode the Each Occurrence limit or the aggregates — a frequently tested point.

The standard supplementary payments include:

• All defense costs the insurer incurs (attorney fees, investigation).
• Cost of bail bonds up to $250 required because of an accident or traffic-law violation arising out of a covered vehicle (no duty 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 costs taxed against the insured in the suit.
• Pre-judgment interest awarded against the insured on the part of the judgment the insurer pays.
• Post-judgment interest that accrues after entry of judgment, until the insurer pays/offers its limit.

Worked Example: Limits Plus Supplementary Payments

An insured with a $1,000,000 Each Occurrence limit is sued. The case settles by judgment for $1,000,000, exhausting the per-occurrence limit. Separately, the insurer incurred $120,000 in defense costs and the court assessed $15,000 in taxed costs and $8,000 in post-judgment interest.

Because defense, taxed costs, and interest are supplementary payments paid in addition to the limit, the insurer's total outlay is:

The insured pays nothing extra. Contrast a defense-within-limits policy (common in professional liability, NOT the standard CGL), where defense costs would erode the $1,000,000, leaving less to pay the judgment. The standard CGL is defense outside the limits.

Who Is an Insured and the Full Supplementary Payments List

The CGL defines who is an insured by the named insured's business form. For a sole proprietor, the individual and spouse (as to business conduct) are insureds; for a partnership or joint venture, the partners and their spouses are insureds; for a corporation, the entity plus its executive officers, directors, and stockholders (as to their duties) are insureds.

Across all forms, employees and volunteer workers are insureds for acts within the scope of their duties, but not for injury to a fellow employee or to the named insured. Newly acquired or formed organizations are automatically insureds for a limited period (commonly 90 days), and real estate managers acting for the insured are included.

Additional insureds are added by endorsement, most often a landlord, a project owner, or a general contractor that a contract requires the insured to name. The exam tests that an additional insured gets coverage only for liability arising out of the named insured's work or premises, not for the additional insured's own independent negligence unless the endorsement says so.

Supplementary payments are paid in addition to the limit and form a list worth memorizing: all defense costs and attorney fees, the cost of bonds to release attachments (up to the limit) and appeal bonds (the insurer does not have to furnish them), reasonable expenses the insured incurs at the insurer's request (including up to a stated amount per day for lost earnings), all costs taxed against the insured, pre-judgment interest on the covered portion of a judgment, and post-judgment interest until the insurer pays or tenders its limit.

Because these are outside the limit, a full-limit judgment plus supplementary payments costs the insurer more than the stated limit, as the worked example shows.

Worked scenario: a general contractor is named as an additional insured on a subcontractor's CGL. A pedestrian injured by the sub's work sues both. The additional-insured endorsement covers the general contractor for liability arising out of the sub's work, and the insurer pays defense and any taxed costs and interest as supplementary payments on top of the limit. Identifying who qualifies as an insured and which costs fall outside the limit is the core insureds-and-supplementary skill.

Key Takeaways

Who is an insured depends on the business form (sole proprietor and spouse; partners and spouses; corporate officers, directors, and stockholders), plus employees and volunteers within their duties, newly acquired organizations for about 90 days, and additional insureds added by endorsement for liability arising out of the named insured's work. Supplementary payments (defense, bond costs, taxed costs, pre- and post-judgment interest, expenses at the insurer's request) are paid in addition to the limit, unlike defense-within-limits professional policies.