10.3 Who Is an Insured and Supplementary Payments
Key Takeaways
- Section II - Who Is an Insured varies by business structure: individuals (and spouse), partnerships/JVs (members and spouses), LLCs (members and managers), and corporations (officers, directors, stockholders).
- Employees and volunteers are insureds but not for injury to co-employees or the named insured (the fellow-employee limitation); workers comp is the remedy.
- Newly acquired or formed organizations are automatic insureds for up to 90 days - but NOT new partnerships, JVs, or LLCs.
- The Separation of Insureds condition applies coverage separately to each insured but does not increase or stack the limits.
- Supplementary Payments (bail bonds up to $250, $250/day lost earnings, court costs, pre- and post-judgment interest) are paid in addition to the limit and do not erode it.
Section II - Who Is an Insured
Section II of the CGL identifies the persons and organizations that qualify as insureds. The list depends on the named insured's business structure shown in the Declarations:
- Individual - the named individual and his or her spouse, but only for the conduct of the business.
- Partnership or joint venture - the partnership/JV plus its members, partners, and their spouses, but only with respect to the business.
- Limited liability company (LLC) - the LLC plus its members (with respect to the conduct of the business) and its managers (with respect to their duties as managers).
- Corporation or other organization - the organization plus its executive officers and directors (acting within their duties) and stockholders (with respect to their liability as stockholders).
In every structure, volunteer workers and employees are insureds for acts within the scope of their employment or duties - but with important limitations covered below.
Employees, Volunteers, and Automatic Insureds
Employees and volunteer workers are insureds, but they are NOT insureds for:
- Bodily injury or personal/advertising injury to the named insured, to a partner or member, or to a co-employee in the course of employment;
- Property damage to property owned, occupied, used by, or in the care of the employee or any of the above persons.
This is the fellow-employee limitation: one worker's negligent injury to a co-worker is generally not covered by the CGL because workers compensation is the proper remedy.
The form also makes certain parties automatic insureds:
- Newly acquired or formed organizations (other than partnerships, JVs, or LLCs) are covered for up to 90 days or the end of the policy period, whichever is earlier.
- The insured's legal representative if the named insured dies, for duties as such.
- Real estate managers acting on the named insured's behalf.
Trap: Newly acquired partnerships, joint ventures, and LLCs do not get the automatic 90-day extension - they must be specifically added.
A corporation acquires a new subsidiary corporation on March 1 but does not notify its insurer. On April 10, the new subsidiary causes a covered liability loss. How does the CGL respond?
Separation of Insureds Condition
The Separation of Insureds condition (a Section IV condition) provides that, except for the limits of insurance and any duties specifically assigned to the first named insured, the coverage applies as if each named insured were the only named insured, and separately to each insured against whom a claim is made or suit is brought.
The practical effect: one insured can have a covered claim against another insured, and an exclusion that applies to one insured does not automatically bar coverage for an innocent insured. It does not increase the limits - the policy limit still caps total payments regardless of how many insureds are involved.
Trap: Separation of Insureds does not stack or multiply limits. A single $1,000,000 occurrence limit applies even if three insureds are named in the same suit.
Supplementary Payments
Supplementary Payments are amounts the insurer pays in addition to the limit of insurance when it defends a suit or related proceeding it has a duty to defend. Because they sit outside the limit, they do not erode the Each Occurrence Limit or the aggregates. The CGL lists them in Section I, and the exam expects you to recognize each item and the two dollar caps embedded in the list.
The CGL Supplementary Payments are:
| Supplementary Payment | Key detail |
|---|---|
| All expenses the insurer incurs | Defense, investigation, adjusting |
| Cost of bail bonds | Up to $250 for bonds related to a covered accident; insurer need not furnish the bond |
| Cost of bonds to release attachments | Within the applicable limit |
| Reasonable expenses incurred at the insurer's request | Including up to $250/day for lost earnings |
| Court costs taxed against the insured | Not including attorney fees taxed as damages |
| Pre-judgment interest | Awarded against the insured on covered damages |
| Post-judgment interest | On the full judgment until the insurer pays/tenders its limit |
Trap: Pre-judgment interest is a supplementary payment paid in addition to the limit. Many candidates wrongly assume interest erodes the limit - it does not. Note the two $250 caps: bail bonds and daily lost earnings. Worked example: If a defended insured loses three workdays attending trial at the insurer's request, the insurer reimburses up to 3 x $250 = $750 in lost earnings, on top of the policy limit.
Which of the following is a Supplementary Payment paid IN ADDITION to the CGL limit rather than within it?
First Named Insured Duties
The CGL designates the first named insured - the entity listed first on the Declarations - with special duties and rights that the Separation of Insureds condition does not spread among the other insureds:
- Paying the premium for the whole policy;
- Receiving any return premium the insurer pays;
- Receiving and acting on cancellation and nonrenewal notices;
- Making changes to the policy by agreement with the insurer; and
- Receiving notice of changes in the audit-developed premium.
Knowing who the first named insured is matters in joint ventures and parent-subsidiary structures, because notices sent to that party bind the entire program. The exam may give you several named insureds and ask which one the insurer bills or notifies - the answer is always the first named insured. Other named insureds enjoy the substantive coverage but not these administrative responsibilities.