10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- The Who Is An Insured section automatically extends the CGL to named insureds plus persons tied to the business structure: spouses, partners, members, managers, officers, directors, stockholders, employees, and volunteer workers acting within their roles.
- Newly acquired or formed organizations are covered automatically for up to 90 days, but coverage does not apply to events before acquisition or to a separately insured entity.
- Independent contractors and additional insureds are NOT automatic insureds; they require an endorsement such as CG 20 10 (ongoing operations) or CG 20 37 (completed operations).
- Supplementary Payments are paid IN ADDITION to the Limits of Insurance, so they do not erode the per-occurrence or aggregate limits.
- Standard supplementary payments include all defense costs, a bail bond up to $250, the cost of appeal/release-of-attachment bonds, up to $250 per day for the insured's lost earnings assisting defense, pre- and post-judgment interest, and other reasonable expenses incurred at the insurer's request.
Who Is An Insured: Automatic Coverage by Business Structure
Section II of the Commercial General Liability (CGL) policy, Who Is An Insured, automatically extends coverage based on how the named insured in the Declarations is organized. The named insured drives who else is protected — without naming them individually.
| Named insured form | Automatic insureds |
|---|---|
| Individual | The named insured and the spouse, but only for the conduct of the business |
| Partnership / Joint Venture | Partners/members and their spouses, for business conduct only |
| Limited Liability Company (LLC) | Members (ownership) and managers (management duties) |
| Corporation / other organization | Officers, directors, and stockholders (in their capacity); the organization itself |
| Trust | Trustees, in their capacity as trustees |
Employees, Volunteers, and Other Automatic Insureds
Beyond owners, the CGL automatically covers:
- Employees (and volunteer workers) for acts within the scope of their employment or duties. Employees are not covered for injury to fellow employees or to the named insured, nor for damage to the employer's property.
- Real estate managers acting for the named insured.
- A legal representative (e.g., estate administrator) if the named insured dies, but only for the named insured's pre-death duties.
- Newly acquired or formed organizations the named insured owns more than 50% of — covered automatically for up to 90 days or to the policy end, whichever is earlier.
The 90-Day Newly Acquired Rule and Its Limits
The 90-day automatic coverage for newly acquired/formed organizations is a favorite exam point, but watch the carve-outs:
- No coverage before the named insured acquired or formed the organization.
- No coverage for BI/PD/P&AI before acquisition or after the 90 days lapses.
- No coverage if the new entity is a partnership, joint venture, or LLC — only entities organized like the named insured qualify.
- Coverage does not apply if other similar insurance is available to the new organization.
After 90 days the new entity must be added to the policy by endorsement to continue coverage.
A corporation buys 100% of a new subsidiary on March 1. A customer is injured at the subsidiary on June 15 (106 days later) and no other insurance applies. How does the parent's CGL respond?
Who Is NOT an Automatic Insured
Several parties are commonly assumed to be insureds but are not without action:
- Independent contractors and subcontractors — they carry their own CGL.
- Additional insureds (landlords, project owners, lenders, vendors) — added only by endorsement.
- Newly acquired LLCs/partnerships/joint ventures — excluded from the 90-day rule.
To add an additional insured, use the appropriate ISO endorsement:
| Endorsement | Adds | Scope |
|---|---|---|
| CG 20 10 | Owners, lessees, contractors | Ongoing operations |
| CG 20 37 | Owners, lessees, contractors | Completed operations |
| CG 20 11 | Managers/lessors of premises | Landlord on leased premises |
| CG 20 26 | Designated person/organization | Broad blanket additional insured |
Supplementary Payments: Paid In Addition to the Limits
The Supplementary Payments provision lists costs the insurer pays in addition to the Limits of Insurance. This is the single most-tested feature: because they are outside the limits, supplementary payments do not erode the per-occurrence or aggregate limits available to pay damages.
| Payment | Detail |
|---|---|
| All defense costs | Attorney fees, court costs, expert witnesses, investigation |
| Bail bonds | Up to $250 (insurer need not furnish the bond) |
| Appeal / release-of-attachment bonds | Cost of the bond; insurer need not furnish it |
| Loss of earnings | Up to $250 per day for the insured's time assisting defense |
| Pre- and post-judgment interest | Interest accruing on the covered judgment |
| Other reasonable expenses | Costs the insured incurs at the insurer's request |
Defense Costs and the Duty to Defend
Defense costs sit in Supplementary Payments, so while the limit lasts, defense is unlimited in dollars. But the duty to defend ends when the applicable limit of insurance is exhausted by payment of judgments or settlements.
The duty to defend is broader than the duty to indemnify: the insurer must defend even a groundless, false, or fraudulent suit, and must defend if any allegation in the complaint could be covered. The insurer may investigate and settle any claim or suit at its discretion.
Worked Numeric: Why "In Addition" Matters
Assume Each Occurrence Limit $1,000,000 and a covered judgment of $1,000,000 plus $180,000 of defense costs and $12,000 of post-judgment interest.
- The $1,000,000 judgment exhausts the Each Occurrence Limit.
- The $180,000 defense and $12,000 interest are supplementary — paid on top of the limit, for a total insurer outlay of $1,192,000.
- Contrast a defense-within-limits (eroding) form: there, defense would come out of the $1,000,000, leaving only $820,000 for the judgment and exposing the insured to the $180,000 shortfall.
Takeaway: the standard CGL pays defense outside the limits, preserving the full limit for the claimant.
Under the standard CGL, which statement about supplementary payments is correct?
Named Insured Status by Business Type, and Supplementary Payments
Under CGL Section II, who qualifies as an insured depends on the named insured's legal form, a point the exam tests with fact patterns.
| Named insured form | Automatic insureds include |
|---|---|
| Individual | The person and their spouse (for business conduct) |
| Partnership / joint venture | The partners/members and their spouses (business only) |
| LLC | The members and the managers |
| Corporation | Executive officers, directors, and stockholders (liability as such) |
| All | Employees (acting in scope) and volunteers |
Supplementary payments are paid in addition to the limit of insurance and do not erode it.
- Defense costs and attorney fees the insurer incurs
- Bail bonds up to $250 and the cost of release-of-attachment bonds
- Up to $250/day for the insured's lost earnings to assist defense
- Post-judgment interest and pre-judgment interest as awarded
Exam Trap: Employees are insureds for acts within the scope of employment, but the CGL excludes coverage for bodily injury to a co-employee and for an employee's liability to the employer - those belong to workers comp and employers liability.