Who Is an Insured and Supplementary Payments
Key Takeaways
- Who Is An Insured depends on the named insured's business form; spouses, partners, members, managers, officers, directors, stockholders, and trustees are automatically insured only for business conduct or their duties.
- Employees and volunteer workers are insureds within their scope of duties but not for injury to the named insured or fellow employees in the course of employment.
- Newly acquired or formed organizations (not partnerships, JVs, or LLCs) are automatically covered for up to 90 days or end of policy period, whichever is first.
- Supplementary Payments (defense costs, court costs, bail/release bonds, $250/day earnings, pre- and post-judgment interest) are paid IN ADDITION to the limit and do not erode it.
- Supplementary payments apply only to claims or suits the insurer defends; defense-within-limits forms differ by reducing the limit.
Who Is an Insured
The Section II - Who Is An Insured provisions of the CGL (CG 00 01) determine which persons and entities receive the policy's protection. The answer depends on the form of business shown in the Declarations as the Named Insured. The exam tests these categories precisely, because coverage flows automatically to certain related parties without being listed.
Why the Business Form Drives Coverage
A CGL is purchased by a single named entity, yet liability claims often name the owners, officers, or members personally alongside the business. Section II solves this by automatically conferring insured status on the natural persons who stand behind each business form, but only for acts connected to the business. A sole proprietor's spouse is an insured for store operations, not for a personal car wreck. A corporate officer is insured for duties as an officer, not for a private side venture. Reading the Declarations to identify the business form is therefore the first step in any who-is-an-insured question.
Automatic Insureds by Business Form
| Named Insured business form | Who else is automatically an insured |
|---|---|
| Individual (sole proprietor) | The individual and their spouse, but only for the conduct of the business |
| Partnership / joint venture | The partnership and its members, partners, and their spouses, only for business conduct |
| Limited liability company (LLC) | The LLC, its members (for business conduct) and managers (for their duties as managers) |
| Corporation / other organization | The organization, its executive officers and directors (for their duties) and stockholders (for liability as stockholders) |
| Trust | The trust and its trustees (for trust duties) |
Employees, Volunteers, and Other Automatic Insureds
Beyond the named-insured entity, the CGL automatically extends insured status to:
- Employees and volunteer workers — but only for acts within the scope of employment or duties for the named insured. Trap: an employee is NOT an insured for BI to the named insured, to a fellow employee in the course of employment, or for damage to the employer's property.
- Real estate managers — any person or organization acting as the insured's real estate manager.
- Legal representatives — if the named insured dies, a person handling the estate becomes an insured (temporary custody of property).
- Newly acquired or formed organizations — automatically covered for up to 90 days or the end of the policy period, whichever is first (not partnerships/JVs/LLCs).
A corporation forms a new subsidiary organization during the policy period and does not notify the insurer. For how long does the CGL automatically extend coverage to the newly acquired organization?
Supplementary Payments - Coverages A and B
The Supplementary Payments provision pays certain costs in addition to the applicable limit of insurance. This is one of the most heavily tested CGL concepts because these amounts do not reduce the limits available for the judgment or settlement.
Supplementary payments are triggered only for claims or suits the insurer defends. If the insurer has no duty to defend a particular claim, supplementary payments do not apply to it. Because these costs sit outside the limit, a claimant's recovery and the insured's protection are not reduced by the expense of mounting a defense, paying court costs, or accruing interest while the case is litigated.
Pre-Judgment vs. Post-Judgment Interest
The interest provisions are a frequent exam trap. Pre-judgment interest is paid only on the portion of the judgment the insurer actually pays, so if the policy limit caps the insurer's share, pre-judgment interest is calculated on that capped amount. Post-judgment interest accrues on the entire judgment from entry of judgment until the insurer pays, offers, or deposits its share. The distinction matters when a judgment exceeds the limit: post-judgment interest can run on the full sum even though the insurer owes interest only until it tenders its limit.
What Supplementary Payments Cover
The insurer will pay, in addition to limits:
- All expenses the insurer incurs (defense costs).
- Up to $250 for the cost of bail bonds required because of an accident or traffic-law violation arising out of a covered vehicle.
- The cost of bonds to release attachments, but only up to the applicable limit of insurance.
- All reasonable expenses incurred by the insured at the insurer's request to help investigate or defend, including up to $250 per day for loss of earnings.
- All court costs taxed against the insured (not attorney fees awarded as damages).
- Pre-judgment interest awarded against the insured on the part of the judgment the insurer pays.
- Post-judgment interest that accrues on the full judgment until the insurer pays its share.
Worked Numeric: Limits Are Not Eroded
Each Occurrence Limit = $500,000. A covered suit results in a $500,000 judgment against the insured. In defending, the insurer incurs $80,000 in defense costs, the court taxes $3,000 in court costs, and $12,000 in post-judgment interest accrues.
- The insurer pays the $500,000 judgment (full each-occurrence limit).
- It also pays $80,000 defense + $3,000 court costs + $12,000 interest = $95,000 as supplementary payments.
- Total paid by the insurer = $595,000, even though the policy limit is $500,000.
Trap: Supplementary payments do not erode the limit, so the insured still receives the full $500,000 toward the judgment. Contrast this with defense-within-limits forms (common in claims-made professional liability), where defense costs DO reduce the limit.
A CGL Each Occurrence Limit is $500,000. A covered judgment is $500,000, and the insurer separately incurs $60,000 in defense costs and $4,000 in taxed court costs. How much does the insurer pay in total?