Who Is an Insured and Supplementary Payments
Key Takeaways
- The Who Is an Insured section defines insured status by the named insured's business structure: individual, partnership, LLC, corporation, or trust.
- Employees and volunteer workers are insureds for acts within the scope of their employment or duties, but not for injury to the named insured or to fellow employees.
- Newly acquired or formed organizations are automatically covered for up to 90 days, subject to conditions.
- Supplementary Payments are paid in addition to the limits of insurance and do not reduce the Each Occurrence Limit or aggregates.
- Supplementary Payments include defense costs, up to $250 bail bonds, the cost of bonds to release attachments, loss of earnings up to $250 per day, and post-judgment interest.
Who Is an Insured
The Who Is an Insured section answers a question that decides every claim: does the policy protect the person being sued? Insured status depends on how the named insured is organized, as shown on the declarations.
- Individual: the named insured and spouse, but only for the conduct of the business.
- Partnership or joint venture: the named insured plus its members, partners, and their spouses, but only for business conduct.
- Limited liability company (LLC): the LLC plus its members (for conduct of business) and managers (for their duties).
Corporations, Employees, and Others
- Corporation or other organization: the entity plus its executive officers, directors, and stockholders, the latter only for their liability as stockholders.
- Trust: the trust and its trustees, but only with respect to their duties as trustees.
Employees and volunteer workers are insureds for acts within the scope of employment or while performing duties related to the business. Critically, they are not insureds for bodily injury to the named insured, to a co-employee, or to a fellow volunteer arising out of work, nor for damage to property the named insured owns or controls.
Newly Acquired Organizations
The CGL automatically extends coverage to organizations the named insured acquires or forms during the policy period, treating them as named insureds. This automatic coverage applies for the shorter of 90 days or the end of the policy period.
The extension does not apply if other similar insurance is available, and it does not cover BI or PD that occurred before the entity was acquired or formed. After 90 days, the new entity must be added by endorsement and additional premium.
Additional Insureds
Parties such as landlords, lenders, or general contractors often require additional insured status by endorsement (for example the CG 20 10 for owners and lessees, or CG 20 37 for completed operations). An additional insured shares the named insured's limits rather than receiving its own separate limits.
Exam trap: do not confuse an additional insured (a third party added to your policy) with an additional named insured (a co-named insured with broader rights and duties under the policy).
Supplementary Payments
Supplementary Payments are amounts the insurer pays in addition to the limits of insurance. This is vital: they do not erode the Each Occurrence Limit or aggregates, so the full limit remains available to pay damages.
The standard list of Coverage A and B supplementary payments:
| Payment | Amount |
|---|---|
| Defense costs and allocated expenses | No stated cap (until limit exhausted by damages) |
| Bail bonds (bodily injury/traffic law) | Up to $250 |
| Cost of bonds to release attachments | Within applicable limit, no premium for bond |
| Reasonable expenses at insurer's request | Actual cost |
| Loss of earnings (assisting defense) | Up to $250 per day |
| Court costs taxed against insured | Actual cost |
| Post-judgment interest | Full amount until paid |
Worked Supplementary Payments Example
An insured with a $1,000,000 Each Occurrence Limit is sued. The defense costs total $120,000, a $200 bail bond is posted, and the insured loses three days assisting the defense at $250 per day ($750). The case settles for the full $1,000,000.
Because supplementary payments are outside the limit, the insurer pays $1,000,000 in damages plus $120,000 defense, $200 bond, and $750 earnings = a total outlay of $1,120,950. None of the supplementary costs reduced the $1,000,000 available for the settlement.
Defense Ends When Limits Exhaust
The duty to defend, funded through supplementary payments, ends once the applicable limit of insurance has been exhausted by the payment of judgments or settlements. After that, the insurer has no further obligation to defend or to pay additional supplementary costs. This is why aggregate erosion (from Section 10.1) matters: a depleted aggregate can leave an insured undefended mid-suit.
Pre-Judgment vs Post-Judgment Interest
A frequently tested nuance: the standard supplementary payments cover post-judgment interest in full, meaning interest that accrues after a judgment is entered but before the insurer pays its share. Pre-judgment interest awarded against the insured is treated as part of the damages, payable only within the limit of insurance, not as a supplementary payment above the limit.
This split can change the math on a claim near the policy limit, so read the question carefully to identify which type of interest is described.
Indemnitee Defense Under Insured Contracts
When the named insured assumes another party's tort liability in an insured contract, the CGL can also pay the defense costs of that indemnitee as supplementary payments, provided strict conditions are met: the insurer defends both parties, the suit alleges covered injury, the indemnitee gives control of the defense, and there is no conflict of interest.
Understanding this provision ties together three concepts the exam loves to combine: contractual liability, additional protected parties, and the limit-preserving nature of supplementary payments.
Spouse, Real Estate Managers, and Estates
The Who Is an Insured section quietly extends to a few special persons. A legal representative managing the named insured's affairs after death is an insured, but only with respect to duties as such, and only for the named insured's property until a legal representative is appointed.
Real estate managers acting for the named insured are insureds. The named insured's spouse is an insured only for the conduct of an individually owned business. These narrow extensions are favorite exam distractors because candidates assume coverage is either broader or narrower than the form actually grants.
Tying It Together
Damages (judgments and settlements) draw down the limits of insurance; supplementary payments such as defense, bonds, and post-judgment interest are paid on top of those limits.
When the limit is exhausted by damages, the duty to defend and further supplementary payments stop. On exam scenarios, separate the two streams, identify the correct insured under the Who Is an Insured rules, then apply the per-occurrence and aggregate caps.
An insured's CGL has a $500,000 Each Occurrence Limit. A claim settles for $500,000 and the insurer also incurs $90,000 in defense costs and pays $200 post-judgment interest. How are these amounts applied?
Under the standard CGL Who Is an Insured provision, how long is a newly acquired or formed organization automatically covered as a named insured?