10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- The Who Is An Insured section automatically extends coverage to executives, partners, members, employees (for acts within the scope of employment), and newly acquired organizations for up to 90 days, varying by named-insured entity type.
- Employees are insureds for work-related acts but are NOT insured for bodily injury to the named insured, to fellow employees, or for the employee's own property; volunteer workers have parallel limited status.
- Supplementary Payments are paid IN ADDITION to the limits and include defense costs, up to $250 for bail bonds, the cost of appeal/release-of-attachment bonds, loss of earnings up to $250/day, and post-judgment interest.
- Newly acquired or formed organizations are covered automatically until the earliest of 90 days, the end of the policy period, or the date the entity is reported, and there is no products-completed operations coverage for them before acquisition.
Who Is An Insured
The Who Is An Insured (Section II) provision of the CGL defines exactly which persons and organizations get coverage, and it varies by the named insured's form of organization listed in the declarations:
- Individual (sole proprietor): the individual and the spouse, but only for the conduct of the named business.
- Partnership or joint venture: the partners/members and their spouses, but only for partnership business.
- Limited liability company (LLC): the members (for business conduct) and the managers (for their duties as managers).
- Organization other than the above (e.g., corporation): executive officers and directors (for their duties) and stockholders (only for liability as stockholders).
- Trust: the trustees, but only for duties as trustees.
Beyond the owners, the CGL automatically extends to two important groups: employees and volunteer workers, and newly acquired or formed organizations.
Employees and volunteer workers
Employees are insureds for acts within the scope of their employment or while performing duties related to the conduct of the named insured's business. Volunteer workers are insureds while performing duties related to the conduct of the business. There are critical limitations on this status that exam writers love:
- They are NOT insured for bodily injury or personal/advertising injury to the named insured, to a partner/member, or to a co-employee or co-volunteer while that person is acting in the course of employment (the 'fellow employee' exclusion).
- They are NOT insured for property damage to property owned, occupied, used by, rented to, or in the care/custody/control of the employer, a co-employee, or the employee themselves.
- Health care professionals who are employees may have different treatment (often endorsed).
Trap: an injured employee suing a co-employee is not covered as an 'insured' relationship under the CGL - this is intentionally carved out so that workers' compensation, not the CGL, handles workplace injuries.
Newly acquired or formed organizations
If the named insured acquires or forms a new organization (other than a partnership, joint venture, or LLC) and maintains ownership or majority interest, that entity is automatically an insured - but only until the earliest of:
- 90 days after acquisition or formation,
- the end of the policy period, or
- the date the new entity is otherwise reported/added.
Two restrictions apply during the automatic window: there is no coverage for BI or PD that occurred before the entity was acquired or formed, and there is no products-completed operations coverage for occurrences before acquisition. After 90 days the insured must request and pay for the entity to be added by endorsement.
Worked example: A corporation buys a small subsidiary on March 1. The subsidiary is automatically an insured under the parent's CGL through May 30 (90 days). A liability claim arising from a May 15 occurrence is covered; a claim from a February 10 occurrence (before acquisition) is not.
The entity type of the new organization matters too. Newly acquired partnerships, joint ventures, and LLCs are NOT picked up automatically under the basic provision - only acquired or formed corporations (and similar organizations) in which the insured maintains ownership or majority interest receive the automatic 90-day status. This is a common exam distractor: a candidate is told the insured formed a new LLC and asked whether it is automatically insured. The answer is no; the new LLC must be added by endorsement.
Supplementary Payments
Supplementary Payments (Coverages A and B) are amounts the insurer pays in addition to the applicable limit of insurance when it defends or investigates a covered claim. Because they are outside the limits, they do not reduce what is available to the claimant for damages. The standard list:
| Supplementary payment | Amount / rule |
|---|---|
| Defense costs and investigation | Full cost, in addition to limits |
| Bail bonds (for accidents/traffic law violations related to a covered vehicle) | Up to $250 per bond |
| Cost of bonds to release attachments | Up to the applicable limit (no obligation to furnish) |
| Reasonable expenses incurred by insured at insurer's request | Including loss of earnings up to $250 per day |
| Court costs taxed against the insured | Full amount |
| Pre-judgment interest | On the part of the judgment the insurer pays |
| Post-judgment interest | On the entire judgment until the insurer pays/tenders/deposits its limit |
Trap: the bail bond limit is $250, not $2,500, and the loss-of-earnings reimbursement is $250 per day - both are favorite exam distractor numbers. Note that once the insurer pays or tenders its limit, its obligation for post-judgment interest stops accruing.
Understand why Supplementary Payments exist 'in addition to' the limits. If defense and these expenses eroded the limit, every dollar spent on lawyers would shrink what is left for the injured claimant, and a heavily litigated claim could exhaust the policy on defense alone. By paying them outside the limit, the standard CGL preserves the full Each Occurrence and aggregate amounts for actual damages. Professional liability and some claims-made forms use 'defense-within-limits' (eroding/wasting limits) instead, so always check whether a question is describing a standard CGL or a different form before deciding how defense affects the limit.
Under the CGL Supplementary Payments provision, what is the maximum the insurer will pay for bail bonds required because of accidents or traffic law violations arising out of the use of a vehicle to which the policy applies?
A corporation acquires a new subsidiary on June 1 and keeps majority ownership. A liability claim arises from an occurrence on August 20. The corporation never reported the subsidiary to its insurer. Is the August 20 occurrence covered under the parent's CGL?