10.3 Who Is an Insured and Supplementary Payments

Who Is an Insured (Section II of CG 00 01)

The CGL automatically extends the named insured's protection to a defined set of persons and organizations. Who qualifies depends on the named insured's business form shown in the Declarations.

Automatic Insureds by Entity Type

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

Also Automatically Insured

• Employees and volunteer workers — but only for acts within the scope of employment or duties for the named insured. Important limits: they are not insured for BI/PD to a co-employee or to the named insured, nor for professional health-care services (except as provided by endorsement).
• Real estate managers acting on the insured's behalf.
• Newly acquired or formed organizations (other than partnerships, JVs, or LLCs) for up to 90 days or the end of the policy period, whichever is earlier — and only if the named insured maintains majority ownership.

Additional Insureds and the Separation of Insureds Condition

Third parties such as landlords, lenders, or project owners are added by additional insured endorsements (e.g., CG 20 10 for ongoing operations, CG 20 37 for completed operations). They obtain protection for liability arising out of the named insured's work or premises, not for their own sole negligence under current ISO wording.

Separation of Insureds

The CGL applies separately to each insured against whom a claim is made — as if each were the only insured (except for the Limits of Insurance and the named insured's duties). This is why one insured can be liable to another in some contexts, and why exclusions are read against the particular insured seeking coverage.

Exam trap: Separation of Insureds does not increase the limits. A single Each Occurrence limit still caps the insurer's total payment for one occurrence, no matter how many insureds are involved.

Supplementary Payments (Section I)

Supplementary payments are amounts the insurer pays in addition to the applicable Limit of Insurance — they do not erode the Each Occurrence limit or the aggregates. They apply to any suit the insurer defends.

What the CGL Pays in Addition to Limits

• All defense costs the insurer incurs (attorney fees, investigation).
• Up to $250 for the cost of bail bonds required because of an accident or traffic-law violation arising out of the use of a covered vehicle (no duty to furnish the bond).
• Cost of bonds to release attachments, but only for amounts within the applicable limit.
• Reasonable expenses incurred by the insured at the insurer's request to help defend, including up to $250 a day for loss of earnings.
• All court costs taxed against the insured (not pre/post-judgment interest on the portion of a judgment above the limit beyond what the form states).
• Pre-judgment interest awarded against the insured on the part of the judgment the insurer pays.
• Post-judgment interest that accrues after entry of judgment and before the insurer pays/tenders/deposits its share.

Worked example: A $900,000 judgment under a $1,000,000 Each Occurrence limit is fully paid. Defense costs of $120,000 plus $4,000 of post-judgment interest are also paid — total $1,024,000 — because supplementary payments are outside the limit. Had the judgment been $1,200,000, the insurer pays its $1,000,000 limit, and post-judgment interest stops accruing for the insurer once it tenders that amount.

Insured vs. Named Insured: A Tested Distinction

Examiners separate the Named Insured (the entity listed in the Declarations, with the broadest rights and the duty to pay premium and report claims) from other insureds who receive protection automatically under Section II. Only the Named Insured can request changes, receive return premium, and exercise certain conditions.

Defense Cost Treatment Compared

The single most tested feature of supplementary payments is that they sit outside the Limits of Insurance. Compare this with many other liability forms — such as some professional liability and umbrella policies — where defense costs are inside the limits and erode the amount available to pay claimants. The CGL's outside-the-limits defense is a genuine benefit to the insured.

Putting It Together

When analyzing a CGL claim, work the order: (1) identify who is an insured and whether the claimant qualifies; (2) determine which coverage (A, B, or C) the facts trigger; (3) test the trigger and exclusions; (4) apply the correct limit and aggregate; then (5) add supplementary payments on top. Mastering this sequence answers the majority of CGL exam items.