10.3 Who Is an Insured and Supplementary Payments

Section II - Who Is an Insured

The identity of the insured depends on the named insured's form of business shown in the Declarations. The CGL automatically extends insured status to certain people and organizations beyond the named insured. Reading the Section II grid correctly is a heavily tested skill because it determines who can tender a claim for defense and indemnity.

Insureds by Form of Business

• Individual (sole proprietor): the named insured and his/her spouse, but only for the conduct of the business.
• Partnership or joint venture: the entity, plus members, partners, and their spouses, for business conduct.
• Limited liability company (LLC): the LLC, plus members (only for LLC business) and managers (only for their duties as managers).
• Organization other than a partnership/JV/LLC (corporation): the corporation, plus its executive officers and directors (for their duties) and stockholders (only for their liability as stockholders).

Automatic Additional Insureds

Beyond the owners, the CGL automatically covers:

• Employees and volunteer workers — but only for acts within the scope of their employment or duties. Crucial traps: employees are not insured for BI to a fellow employee or to the named insured, and they are not covered for PD to property owned/occupied by the employer or fellow employees.
• Real estate managers acting on the named insured's behalf.
• Legal representatives if the named insured dies (covering the estate's duties).
• Newly acquired or formed organizations (other than partnerships/JVs/LLCs) for up to 90 days or the end of the policy period, whichever is earlier — and not if other similar insurance applies.

Additional Insured Endorsements

Third parties such as landlords, lenders, and project owners are added by CG 20 xx endorsements when a contract requires it. Common forms include CG 20 10 (additional insured - owners, lessees, or contractors, scheduled, ongoing operations) and CG 20 37 (products-completed operations). The separation of insureds condition means the policy applies separately to each insured as if each were the only insured, except with respect to the limits and the named insured's duties — so one insured's intentional act does not necessarily bar coverage for an innocent co-insured.

Supplementary Payments - Coverages A and B

Supplementary Payments are amounts the insurer pays in addition to the limits of insurance in connection with a covered claim or suit it defends. They are a favorite exam topic because of the specific dollar figures and because they do not erode the limit.

Worked Example: Limits, Interest, and Supplementary Payments

The insured has an Each Occurrence Limit of $300,000. A jury awards a plaintiff $500,000, with $40,000 pre-judgment interest and post-judgment interest accruing.

• The insurer pays the policy limit toward the judgment: $300,000 (the insured owes the remaining $200,000 of the judgment personally).
• Pre-judgment interest is a supplementary payment only on the portion within the limit, so the insurer pays interest on $300,000, not $500,000 — here roughly $24,000 of the $40,000.
• Post-judgment interest accrues on the full $500,000 until the insurer pays or deposits its share, even though that pushes total outlay above the limit, because supplementary payments are outside the limit.

The takeaway: supplementary payments (defense, bail, post-judgment interest) are extra-contractual to the limit, but pre-judgment interest is capped to the in-limit portion of the judgment.

Newly Acquired Organizations and the Employee/Volunteer Line

Two automatic-insured rules round out Section II.

A newly acquired or formed organization is automatically an insured, but only until the end of the policy period or 90 days, whichever is earlier, and only if no other similar insurance applies — and not for prior-acquisition occurrences. Employees and volunteer workers are insureds for acts within the scope of employment or duties, but with key carve-outs: they are not insured for bodily injury to a fellow employee or to the named insured, for injury arising from their professional health-care services (except as provided), or for damage to property the employer owns.

The named insured's stockholders are insureds only for their liability as stockholders. The exam ties this to the Separation of Insureds condition, which applies the policy separately to each insured (so one insured's exclusion does not automatically void another's coverage) — but the limits of insurance still apply collectively, not per insured.

Bail Bonds, Lost Earnings, and Defense Cost Mechanics

The Supplementary Payments list is short but precisely tested.

The CGL pays, in addition to the limit: all defense costs; up to $250 for bail bonds (no obligation to furnish the bond); the cost of appeal and release-of-attachment bonds (again, no duty to furnish); all interest on the full judgment that accrues after entry of judgment and before payment (post-judgment interest); pre-judgment interest awarded against the insured on the part of the judgment the insurer pays; reasonable expenses the insured incurs at the insurer's request, including up to $250 a day for lost earnings; and other reasonable litigation expenses taxed against the insured.

Because these payments are outside the limits, a $1,000,000 occurrence limit can be supplemented by tens of thousands in defense and interest — until the limit is exhausted by a judgment or settlement, at which point the duty to defend ends. This "costs in addition" structure is a frequent contrast with liability forms that pay defense within the limit.