Who Is an Insured and Supplementary Payments

Who Is an Insured and Supplementary Payments

The Section II - Who Is an Insured provisions of the CGL determine which persons and organizations receive protection, and the Supplementary Payments provisions add defense-related costs that are paid in addition to the policy limits. Both are tested because they change who is covered and how much the insurer ultimately spends.

The "Who Is an Insured" answer depends on the named insured's legal structure shown in the declarations: individual, partnership/joint venture, LLC, corporation, or trust.

Who Is an Insured by Business Type

In every organization type, employees and volunteer workers are insureds for acts within the scope of their employment/duties - but with important limits.

Employees, Volunteers, and Newly Acquired Entities

Employees and volunteer workers are insureds except for:

• Bodily injury or personal/advertising injury to the named insured, a co-employee, or another volunteer in the course of employment.
• Injury arising from rendering or failing to render professional health care services (unless endorsed).
• Property damage to property owned, occupied, used by, or in the care/custody/control of the employee, employer, or co-employees.

Newly acquired or formed organizations are automatically insureds, but only until the 90th day after acquisition/formation or the end of the policy period (whichever is earlier), and not for prior injury or for entities that are partnerships, joint ventures, or LLCs.

Supplementary Payments - Coverages A and B

Supplementary Payments are paid in addition to the limit of insurance - they do not erode the Each Occurrence or aggregate limits. With respect to any claim or suit the insurer defends, it will pay:

• All expenses the insurer incurs.
• Up to $250 for bail bonds required because of accidents/traffic-law violations arising from a covered auto (the insurer is not obligated to furnish the bond).
• The cost of bonds to release attachments (within the limit).
• 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 considerations beyond those stated).
• Pre-judgment interest on the part of the judgment the insurer pays, and all post-judgment interest that accrues.

Worked Numeric: Why Supplementary Payments Matter

A covered Coverage A suit results in a $1,000,000 judgment, exactly the Each Occurrence limit. The insurer also incurs $120,000 in defense costs, pays $15,000 in court costs taxed against the insured, and $8,000 in post-judgment interest.

Because defense, court costs, and interest are Supplementary Payments paid in addition to limits, the insurer's total outlay is $1,000,000 + $120,000 + $15,000 + $8,000 = $1,143,000, even though the indemnity limit was "only" $1,000,000. Exam trap: candidates often assume defense costs erode the limit. On the standard CGL they do not - unlike many professional liability (claims-made E&O) forms where defense is inside the limit.

Indemnitees in Contracts and Common Traps

The CGL Supplementary Payments also extend, under specified conditions, to defending an indemnitee (such as a project owner) when the insured assumed the indemnitee's defense in an insured contract - if the suit alleges the insured's liability and various administrative conditions are met. This is distinct from adding the owner as an additional insured by endorsement (e.g., CG 20 10 / CG 20 37).

Common traps to memorize:

• Supplementary Payments are outside the limit; the $250 bail bond and $250/day earnings figures are fixed dollar amounts, not the policy limit.
• A newly acquired LLC, partnership, or joint venture is NOT automatically covered under the 90-day rule.
• Defense ends once the insurer has exhausted the applicable limit paying judgments or settlements.

Who Is an Insured Under the CGL

The CGL "Who Is an Insured" section turns on the named insured's business form, and matching the entity type to the covered persons is a classic exam item:

Employees, Volunteers, and Newly Acquired Entities

Employees and volunteer workers are insureds for acts within the scope of their employment or duties - but not for injury to another employee, to the named insured, or for professional services. Newly acquired or formed organizations are automatically insured for up to 90 days (or end of term, whichever first), provided the named insured maintains majority ownership and no other similar insurance applies.

Supplementary Payments

Like the auto and homeowners forms, the CGL pays supplementary payments in addition to the limit: all defense costs; up to $250 for bail bonds; the cost of appeal bonds and bonds to release attachments; reasonable expenses incurred by the insured at the insurer's request (including up to $250 a day for lost earnings to attend trial); court costs taxed against the insured; and pre- and post-judgment interest on the part of a judgment within the limit.

The Insured-Contract Defense Benefit

A valuable supplementary-payments feature: when the insurer defends an indemnitee under an "insured contract," the indemnitee's defense costs can be paid as supplementary payments rather than eroding the limit, provided specified conditions are met. The candidate should connect this to the contractual liability exclusion's exception for "insured contracts," which restores coverage for liability the insured assumes under leases, sidetrack agreements, easements, and similar standard business contracts.