10.3 Who Is an Insured and Supplementary Payments

Who Is an Insured

The Who Is An Insured provision of the ISO CGL (CG 00 01) defines who receives protection beyond the named insured shown in the declarations. The answer depends on the business structure designated on the declarations. The exam expects you to map entity type to the persons automatically covered.

Why Entity Type Drives the Answer

The declarations name a single insured and state its form of business. The Who Is An Insured language then automatically pulls in the people closest to that entity so they do not each need a separate policy.

The practical danger: if the wrong entity type is shown, the people you think are covered may not be. A sole proprietor's spouse is an insured, but a partner is covered under the partnership rule, not the individual rule. Always confirm the declared structure before deciding who qualifies.

Coverage by Entity Type

Employees and Volunteer Workers

The form automatically extends insured status to employees and volunteer workers, but only for acts within the scope of employment or while performing duties related to the business. Critical exclusions limit this:

• They are not insureds for BI to a co-employee or to the named insured (those are WC matters).
• They are not insureds for damage to property owned, occupied, or rented by them or a fellow employee.
• Professional health-care services rendered by an employee may be excluded unless added back by endorsement.

Newly Acquired or Formed Organizations

The CGL automatically covers newly acquired or formed organizations (other than partnerships, joint ventures, or LLCs) as named insureds, but the coverage:

• Lasts only until the 90th day after acquisition or formation, or the end of the policy period, whichever is earlier.
• Does not apply to BI/PD that occurred before you acquired or formed the organization.

The 90-day automatic window is a heavily tested number; after it expires the new entity must be scheduled by endorsement.

Additional Insureds

Parties such as landlords, lessors, or project owners are frequently added by additional insured endorsements (for example, CG 20 10 for owners/lessees/contractors — scheduled persons, and CG 20 37 for completed operations). The exam tests that an additional insured is covered only for liability arising out of the named insured's work or premises, not for the additional insured's own sole negligence under modern editions.

Separation of Insureds

The CGL contains a Separation of Insureds condition (sometimes called severability). It states that, except for the limits of insurance and any duties specifically assigned, the policy applies as if each named insured were the only insured, and separately to each insured against whom a claim is made.

Practical effect: one insured can be barred by an exclusion while a co-insured is still covered for the same suit, and the limits are not multiplied by the number of insureds. The total available remains the limit shown on the declarations regardless of how many parties qualify as insureds.

Supplementary Payments

Supplementary Payments are amounts the insurer pays in addition to the applicable limit of insurance when it defends a suit. Because they sit outside the limits, they do not reduce the Each Occurrence, General Aggregate, or other CGL limits. This is one of the most tested CGL features.

What Supplementary Payments Include

For a covered suit the insurer defends, supplementary payments include:

• All defense costs the insurer incurs.
• Up to $250 for bail bonds from an accident or traffic violation involving a covered vehicle (the CGL reimburses; it does not furnish the bond).
• The cost of bonds to release attachments, up to the limit of insurance.
• Reasonable expenses the insured incurs at the insurer's request, including up to $250 a day for loss of earnings.

Supplementary payments also include:

• All court costs taxed against the insured in the suit.
• Pre-judgment interest awarded against the insured on covered damages.
• All interest on the full amount of any judgment that accrues after entry of the judgment and before the insurer pays or deposits its limit.

The post-judgment interest provision is important: it accrues on the entire judgment, even amounts above the limit, until the insurer tenders its limit. Once the insurer pays or offers to pay the limit, its obligation to pay supplementary defense costs and interest ends.

Worked Example: Supplementary Payments Sit Outside Limits

Assume a covered judgment is $1,000,000, equal to the Each Occurrence limit. The insurer also incurs $120,000 defense, $8,000 court costs, and $15,000 pre-judgment interest.

• Indemnity paid against the limit: $1,000,000 (exhausted).
• Supplementary payments paid in addition: $120,000 + $8,000 + $15,000 = $143,000.
• Total insurer outlay: $1,143,000.

The insured owes nothing extra for these listed expenses because supplementary payments do not erode the limit. Memorize the $250 bail bond and $250/day loss-of-earnings caps as the two dollar traps.