10.3 Who Is an Insured and Supplementary Payments

Who Is an Insured Depends on Business Structure

Section II of CG 00 01 answers "who counts as an insured" by reference to how the Named Insured is organized, listed in the Declarations. The form automatically extends insured status to certain people, but the exact list changes with entity type:

In every structure, employees and volunteer workers are insureds for acts within the scope of their work, but not for injury to the insured or co-employees, or to a co-employee's property. This co-employee exclusion is a recurring exam item.

Newly Acquired Entities and Other Automatic Insureds

The form also grants automatic, time-limited status to entities the named insured forms or acquires:

• A newly acquired or formed organization (over which the named insured maintains majority ownership) is an insured, but only until the end of the policy period or 90 days from acquisition, whichever is earlier. Coverage does not apply to BI/PD that occurred before acquisition. The 90-day rule is heavily tested.
• Real estate managers (persons or organizations) acting on the named insured's behalf are insureds.
• Operators of mobile equipment registered for road use, and the operator's employer, get limited insured status.

Note what is excluded: a newly acquired organization that is a partnership, joint venture, or LLC is not automatically an insured under the newly-acquired provision - those forms require a scheduled endorsement. Candidates often wrongly assume the 90-day grant covers every new entity.

Supplementary Payments - Coverages A and B

Supplementary Payments are amounts the insurer pays in addition to the limits of insurance - they do not erode the Each Occurrence or aggregate limits. They apply to a claim or suit the insurer defends.

The listed items are:

• All defense costs (attorney and investigation fees) the insurer incurs
• Up to $250 for bail bonds from a covered accident
• The cost of bonds to release attachments within the limit
• Reasonable expenses the insured incurs at the insurer's request, including $250/day for lost earnings
• All court costs taxed against the insured
• Pre-judgment interest on the part the insurer pays, plus all post-judgment interest

Memorize the two $250 figures (bail bonds; daily lost earnings) - they are favorite distractor targets, often swapped with $500 or $1,000.

Why Defense "Outside the Limits" Matters - A Worked Illustration

Assume a CGL with a $1,000,000 Each Occurrence Limit. A covered suit produces a $1,000,000 judgment, and the insurer spends $180,000 on defense attorneys plus $12,000 in taxed court costs and $9,000 post-judgment interest.

Because defense and these listed items are Supplementary Payments, the insurer pays the full $1,000,000 indemnity PLUS $201,000 ($180,000 + $12,000 + $9,000) - a total outlay of $1,201,000 - and the insured owes nothing extra.

Contrast this with a defense-within-limits ("eroding" or "wasting") policy common in professional/E&O forms, where the $180,000 defense would shrink the $1,000,000 available for the judgment to $820,000. The CGL's defense-outside-limits design is a major selling point and a frequent comparison question. One further trap: the insurer's duty to defend ends once it has used up the applicable limit in paying judgments or settlements, even though defense itself did not erode that limit.

Employees, Volunteers, and Real-Estate Managers

Beyond the named insured, the CGL automatically makes certain parties insureds: employees and volunteer workers for acts within the scope of their duties (but not for injury to fellow employees or to the named insured, and not for professional services), real-estate managers acting for the insured, and legal representatives if the named insured dies. Employees are not insured for bodily injury to co-employees — that is the employers liability / workers comp boundary the exam probes.

Additional Insured Endorsements

Contracts routinely require a business to name a customer as an additional insured (e.g., CG 20 10 for ongoing operations, CG 20 37 for completed operations). The additional insured gets coverage only for liability arising out of the named insured's work, and current ISO editions limit it to the scope required by the written contract and not broader than allowed by law.

Supplementary Payments Recap

Because defense and these costs sit outside the limit, the full limit of insurance remains available to pay the damages themselves — a major advantage over forms with defense inside the limit.