10.3 Who Is an Insured and Supplementary Payments

Who Is an Insured

The CGL's 'Who Is an Insured' section (Section II) defines who receives protection beyond the named insured listed on the declarations. The coverage automatically extends to certain parties based on the named insured's business structure. Candidates must match the entity type to the automatic insureds.

Automatic Insureds by Entity Type

• Individual (sole proprietor): the named insured and the spouse, but only for the conduct of the business.
• Partnership or joint venture: the partners/members and their spouses, but only for business conduct.
• Limited liability company (LLC): the members (with respect to LLC conduct) and managers (with respect to their duties as managers).
• Corporation or other organization: executive officers and directors (acting within duties) and stockholders (only for their liability as stockholders).

In all entity types, employees and volunteer workers are insureds for acts within the scope of employment or duties for the insured - but not for (1) injury to the named insured or co-employees, (2) bodily injury arising from rendering professional health-care services (unless endorsed), or (3) damage to property the employee owns or controls.

Trap: A newly acquired or formed organization (other than a partnership, JV, or LLC) is automatically covered as a named insured, but only until the 90th day after acquisition or the end of the policy period, whichever is earlier - and there is no coverage for occurrences before acquisition. A separately formed partnership/JV/LLC is not automatically an insured.

Additional Insureds vs. Automatic Insureds

Additional insureds are third parties (e.g., a landlord, a general contractor) added by endorsement - they are NOT automatic. The widely tested form is CG 20 10 (additional insured - owners, lessees, or contractors), which covers ongoing operations; the companion CG 20 37 extends additional-insured status to completed operations. Do not confuse contractual additional insureds with the automatic insureds in Section II.

Two more automatic-insured points are tested. First, the estate, legal representative, or guardian of a deceased or incapacitated insured becomes an insured, but only for duties relating to the insured's property. Second, anyone operating mobile equipment registered for road use is treated under the auto rules, not the CGL - a common trick that pairs CGL with the Business Auto Coverage Form. Coverage for newly acquired organizations does not extend to a separate partnership, joint venture, or LLC; those entities must be specifically endorsed.

Supplementary Payments

Supplementary Payments are amounts the insurer pays in addition to the applicable limit of insurance for covered claims under Coverage A or B. Because they are paid on top of the limit, a large defense cost does not reduce the policy limit available to pay the judgment. This is a frequent exam contrast point with shrinking/eroding (defense-within-limits) professional liability policies.

What Supplementary Payments Cover

• All defense costs the insurer incurs (attorney fees, investigation) - paid in addition to the limit.
• Up to $250 for bail bonds related to a covered accident (note: the insurer is not obligated 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 court costs taxed against the insured in the suit (excluding attorney fees of the claimant unless awarded).
• Pre-judgment interest awarded against the insured on the part of the judgment the insurer pays.
• Post-judgment interest on the entire judgment that accrues after entry and before the insurer pays/tenders/deposits its share.

Worked Numeric: Limits Are NOT Eroded by Defense

A CGL has a $1,000,000 each-occurrence limit. A covered suit results in a $1,000,000 judgment. The insurer also spends $180,000 defending the suit and $20,000 in court costs and post-judgment interest.

• Judgment paid: $1,000,000 (full each-occurrence limit).
• Defense costs: $180,000 paid as a Supplementary Payment - on top of the limit.
• Court costs/interest: $20,000 also paid as Supplementary Payments.
• Total insurer outlay: $1,000,000 + $180,000 + $20,000 = $1,200,000.

Trap: Candidates often assume defense costs reduce the limit. Under the standard CGL, supplementary payments (including defense) are outside the limit, so the full $1,000,000 remains available for damages. Note one boundary: the duty to defend ends when the applicable limit is exhausted by payment of judgments or settlements.

Pre-Judgment vs. Post-Judgment Interest

Examiners separate two interest types. Pre-judgment interest is awarded only on the portion of the judgment the insurer actually pays, reflecting the time the claimant waited before judgment. Post-judgment interest accrues on the entire judgment after entry, but the insurer's obligation stops once it pays, tenders, or deposits its share of the judgment into court. So if a $1,400,000 verdict exceeds a $1,000,000 limit, the insurer owes post-judgment interest on the full $1,400,000 only until it deposits its $1,000,000 - after which the insured bears interest on the excess $400,000.

Finally, distinguish the standard CGL from defense-within-limits (also called wasting, eroding, or self-consuming) policies common in professional liability and directors-and-officers coverage, where every dollar of defense reduces the limit available to pay the claim. The standard CGL is not a wasting policy, which is why the supplementary-payments structure is so valuable to insureds facing protracted litigation.