10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- Insured status under Section II follows business structure: individual/spouse, partners or LLC members/managers, or corporate officers/directors/stockholders.
- Employees and volunteer workers are insured within their duties but not for injury to the named insured or fellow employees.
- Newly acquired or formed organizations are auto-covered up to 90 days when ownership exceeds 50%; additional insureds are added by endorsement (CG 20 10/CG 20 37).
- Supplementary Payments are paid in addition to limits: defense expenses, $250 bail bonds, attachment bonds, $250/day lost earnings, and court costs.
- Post-judgment interest accrues on the full judgment until the insurer deposits its limit, but the insured owes any excess above the limit.
Who Is an Insured
The CGL 'Who Is An Insured' section (Section II) defines who receives protection. Coverage extends well beyond the named insured listed on the declarations. The exam tests how status depends on the business structure of the named insured.
| Named Insured Form | Additional Insureds (Section II) |
|---|---|
| Individual | The named insured and spouse, but only for business conduct |
| Partnership / Joint Venture | Members, partners, and their spouses, for business conduct |
| Limited Liability Company (LLC) | Members (for business) and managers (for duties as managers) |
| Corporation | Executive officers and directors (for duties); stockholders (for liability as stockholders) |
This structure-driven status is heavily tested: an LLC's members are insured for the conduct of the business, while managers are insured for their management duties.
Employees, Real Estate Managers, and Newly Acquired Entities
In addition to the owners above, the CGL automatically extends insured status to:
- Employees and volunteer workers — insured for acts within the scope of employment or duties. Important traps: they are not insured for (1) BI/PD to the named insured, fellow employees, or co-volunteers; (2) BI to the spouse, child, parent, or sibling of a co-employee; or (3) liability arising from professional health care services (with limited exceptions).
- Real estate managers acting on the insured's behalf (an individual or organization).
- Legal representatives if the named insured dies (temporary insured status for the estate).
- Newly acquired or formed organizations — automatically insured for up to 90 days (or end of policy period, whichever is first), provided the named insured owns more than 50% and the entity is not a partnership, JV, or LLC and is not covered by other similar insurance.
No person or organization is an insured for the conduct of any partnership, JV, or LLC that is not shown as a named insured.
A corporation acquires a new subsidiary (owning 80%) mid-policy. For how long is the newly acquired organization automatically an insured under the CGL, absent endorsement?
Additional Insured Endorsements
Beyond automatic insured status, businesses frequently add additional insureds by endorsement to satisfy contracts. Common endorsements include CG 20 10 (owners, lessees, or contractors — scheduled) and CG 20 37 (completed operations). A landlord may be added as an additional insured on a tenant's CGL; a project owner may require contractors to add them. These endorsements typically extend coverage only for liability arising out of the named insured's operations performed for that additional insured, not for the additional insured's sole negligence. This is the mechanism behind certificates of insurance in commercial contracts.
A frequent exam distinction: a certificate of insurance is merely evidence that coverage exists at a point in time — it confers no rights and does not amend the policy. Only an endorsement actually adds an additional insured. Post-2013 ISO additional-insured endorsements also limit coverage to the minimum required by the written contract and only to the extent permitted by law, so the additional insured cannot receive broader protection than the contract specified.
Supplementary Payments
Supplementary Payments are amounts the insurer pays in addition to the limits of insurance under Coverages A and B. They cover the costs of defending and resolving claims and are a frequent exam topic because candidates confuse them with the limits. They are payable for a claim or suit the insurer defends.
The standard supplementary payments are:
- All expenses the insurer incurs in defense.
- Up to $250 for bail bonds required because of accidents or traffic-law violations arising out of a covered vehicle (no obligation to furnish the bond).
- Cost of bonds to release attachments, up to the applicable limit of insurance (no obligation to furnish).
- Reasonable expenses incurred by the insured at the insurer's request to assist in defense, including up to $250 per day for lost earnings.
- All court costs taxed against the insured in the suit (excluding attorneys' fees awarded as damages).
Interest and a Worked Example
Supplementary payments also include interest:
- Pre-judgment interest awarded against the insured on the part of the judgment the insurer pays (within its limit).
- Post-judgment interest on the full amount of the judgment that accrues after entry of the judgment and before the insurer pays, offers, or deposits its applicable limit.
Worked example: A judgment of $1,200,000 is entered against an insured with a $1,000,000 Each Occurrence Limit. The insurer pays its $1,000,000 limit plus pre-judgment interest on its $1,000,000 share and post-judgment interest on the full $1,200,000 until it deposits its limit — all as supplementary payments on top of the $1,000,000 limit. The insured remains responsible for the $200,000 excess judgment and any interest accruing after the insurer pays its limit.
Which statement about CGL Supplementary Payments is correct?
Key Takeaways
- Insured status under Section II depends on the named insured's business structure: individual + spouse, partners/members + spouses, LLC members/managers, or corporate officers/directors/stockholders.
- Employees and volunteer workers are insured within their duties but not for injury to the named insured or fellow employees.
- Newly acquired/formed organizations are automatically covered up to 90 days if ownership exceeds 50%; additional insureds are added by endorsement (CG 20 10 / CG 20 37) for contracts.
- Supplementary Payments are paid in addition to the limits: defense expenses, $250 bail bonds, attachment bonds, $250/day lost-earnings, court costs, and interest.
- The insurer pays post-judgment interest on the full judgment until it deposits its limit, but the insured owes any excess judgment.