10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- Section II extends insured status based on the named insured's business form — individual, partnership, LLC, or corporation — plus employees and volunteer workers for acts within scope of duties
- Employees are not insureds for bodily injury to a fellow employee or the named insured, nor for damage to property they own or control
- Newly acquired or formed organizations are automatic insureds for 90 days or until policy expiration, whichever is first, if no other similar insurance exists
- Third parties such as landlords and general contractors become insureds only through additional insured endorsements like CG 20 10 or CG 20 37
- Supplementary Payments — defense costs, bail bonds up to $250, $250 per day lost earnings, court costs, and pre/post-judgment interest — are paid in addition to policy limits
A CGL policy that pays for nobody you care about is worthless at claim time. Section II — Who Is an Insured answers the threshold question: who may tender a defense and demand indemnity? Running parallel in the policy is the Supplementary Payments clause, which pays critical costs in addition to the limits of insurance. National casualty questions on the Nevada P&C exam frequently pair these topics — a fact pattern names three parties and asks who is an insured, then adds court costs and asks whether they erode the limit. Master both sections together.
Section II: Automatic Insureds by Business Form
The named insured shown in the Declarations is always an insured. Section II then extends status based on how that named insured is organized:
| Named Insured Type | Who Else Is an Automatic Insured |
|---|---|
| Individual (sole proprietor) | The individual and spouse, but only with respect to the conduct of the named insured's business |
| Partnership or joint venture | Partners, members, and their spouses, for business conduct |
| Limited liability company (LLC) | Members with respect to conduct of business; managers with respect to duties as managers |
| Corporation | Executive officers and directors with respect to duties; stockholders with respect to liability as stockholders |
| All organization types | Employees and volunteer workers for acts within the scope of employment or volunteer duties |
Exam trap — spouse coverage: A spouse is an automatic insured only when the named insured is an individual sole proprietor, and only for business conduct. The spouse of a corporate officer is not automatically an insured.
Exam trap — stockholders: Stockholders are insureds only for liability as stockholders — not for personal negligence unrelated to stockholder status.
Employees, Volunteers, and Sharp Limitations
Employees and volunteer workers receive broad insured status for job-related acts, but Section II imposes important limitations:
| Limitation | What It Means |
|---|---|
| Fellow-employee exclusion | Employee is not an insured for bodily injury to another employee of the named insured or to the named insured |
| Owned or controlled property | Employee is not an insured for property damage to property owned or occupied by, or rented to, the named insured or any employee |
| Professional health care | Employee is not an insured for professional health care services unless endorsed |
Nevada scenario: A warehouse employee in North Las Vegas negligently backs a forklift into another employee. The injured worker's tort claim against the co-worker employee is not covered under the CGL's employee-as-insured grant because of the fellow-employee limitation. The claim may instead route through workers' compensation.
Nevada scenario: The same forklift driver damages pallets owned by the employer. The employee is not an insured for that property damage because the property belongs to the named insured.
Other Automatic Insured Categories
Beyond owners and employees, the CGL also treats as insureds:
- Real estate managers — persons or organizations acting as real estate managers for the named insured, with respect to liability arising out of management of premises the named insured owns, rents, or controls.
- Newly acquired or formed organizations — automatic insured status for 90 days or until the end of the policy period, whichever is first, provided no other similar insurance applies. After 90 days, the entity must be added to the policy or it loses automatic status.
Worked example: A Carson City corporation acquires a new subsidiary LLC on June 1. The policy expires December 31. The new LLC is an automatic insured until August 30 (90 days) — not December 31 — unless the insurer is notified and the entity is added. If another liability policy already covers the LLC, the automatic extension may not apply.
Additional Insureds — Endorsement Only
Landlords, general contractors, municipalities, and lenders are not automatic insureds under Section II. They gain status only through an additional insured endorsement, most commonly:
| Endorsement | Typical Use |
|---|---|
| CG 20 10 | Owners, lessees, or contractors — scheduled, ongoing operations |
| CG 20 37 | Additional insured for products-completed operations |
| CG 20 33 | Lessors of leased equipment |
Worked example: A Las Vegas general contractor requires a roofing subcontractor to add the GC as additional insured on the sub's CGL via CG 20 10. A pedestrian injured by falling debris from the sub's ongoing work tenders the claim to the sub's insurer. The GC is defended and indemnified as an additional insured for liability arising out of the sub's work. Trap: CG 20 10 limits the additional insured to liability caused in whole or in part by the named insured's acts or omissions — the GC is not covered for its own independent negligence unrelated to the sub's work.
Supplementary Payments: Outside the Limits
When the insurer defends an insured under Coverage A or B, Supplementary Payments cover specified costs in addition to the limits of insurance. They do not erode the Each Occurrence, Personal and Advertising Injury, or General Aggregate limits.
Standard supplementary payments include:
| Item | Typical Cap or Rule |
|---|---|
| Defense expenses the insurer incurs | No dollar cap in the standard form — paid outside limits |
| Bail bonds | Up to $250 per bond for traffic violations arising from covered auto use |
| Bonds to release attachments | Up to the applicable limit of insurance |
| Insured's reasonable expenses at insurer's request | Including up to $250 per day for lost earnings |
| Court costs taxed against the insured | Excluding attorney fees taxed against the insured |
| Pre-judgment interest | On that part of the judgment the insurer pays |
| Post-judgment interest | On that part of the judgment the insurer pays, accruing after judgment and before payment |
Worked example: Each Occurrence limit is $1,000,000. A jury awards $1,000,000 in damages plus $35,000 in court costs taxed against the insured, $20,000 in pre-judgment interest on the covered judgment, and a $250 bail bond. The insurer pays the $1,000,000 damages (exhausting the occurrence limit) plus $35,000 court costs, $20,000 interest, and $250 bail bond as supplementary payments — total $1,055,250. The insured does not pay those extras out of pocket.
Contrast for the exam: Many professional liability and D&O policies pay defense inside the limit (eroding or wasting limits). The standard CGL is the opposite — defense is outside. When a stem contrasts E&O with CGL, that distinction is usually the tested point.
When Supplementary Payments Stop
The duty to defend — and supplementary payment of defense costs — ends when the applicable limit of insurance has been exhausted by payment of judgments or settlements. If a $1M limit is paid out in settlement, the insurer is not obligated to keep defending or paying further supplementary items tied to that claim unless the policy or state law provides otherwise.
Putting Insured Status and Supplementary Payments Together
| Fact Pattern | Insured? | Supplementary Payments? |
|---|---|---|
| Sole proprietor's spouse sued for business conduct | Yes — automatic insured | Defense and costs outside limits if Coverage A/B applies |
| Employee injures customer on the job | Employee is insured for third-party claim | Defense for employee if claim is covered |
| Employee injures co-employee | Employee not insured for BI to fellow employee | CGL does not respond — WC analysis |
| Landlord added by CG 20 10, injured by tenant's operations | Landlord is additional insured | Supplementary payments apply to covered defense |
| New LLC acquired day 60, claim on day 100 | Automatic insured if within 90 days and no other policy | Normal supplementary payment rules apply |
Nevada Producer Perspective
Commercial clients along the Las Vegas Strip, in Henderson industrial parks, and at rural Nevada construction sites routinely negotiate additional insured status in leases and subcontracts. Knowing the difference between automatic Section II insureds and endorsement additional insureds prevents coverage gaps at certificate-of-insurance time. Explaining that defense costs do not erode CGL limits helps clients understand why the standard ISO form is valuable compared to eroding-limit professional policies.
When you sit for the Pearson VUE combo exam, read who is being sued before you read what happened. Entity type, employee status, and endorsement language determine insured status; court costs and interest determine whether payment exceeds the stated occurrence limit.
Memory anchors: spouse only for individual sole proprietors · fellow-employee BI exclusion · 90-day automatic coverage for new entities · additional insured requires endorsement · supplementary payments sit outside limits.
A corporation insured under a CGL acquires a new subsidiary on April 1. The policy period ends December 31, and no other liability insurance covers the subsidiary. Until when is the subsidiary an automatic insured?
An employee of the named insured negligently injures a customer while performing job duties. With respect to the customer's bodily injury claim against the employee, the employee is:
A covered lawsuit results in a $1,000,000 judgment at the Each Occurrence limit, plus $25,000 in court costs taxed against the insured and $10,000 in post-judgment interest. How much does the insurer pay in total on the standard CGL?