Property and Casualty Insurance · Casualty Insurance · 7 min read
CGL Protected Parties and Limit Sharing
- Identify which individuals and entities qualify as insureds under Section II of the standard Commercial General Liability (CGL) coverage form based on business structure and role.
- Explain the duties and rights assigned specifically to the first named insured on a CGL policy.
- Distinguish between per-occurrence limits, sublimits, and the two distinct aggregate limits outlined in Section III of the CGL form.
Section II: Named Insureds and Business Entities
Section II of the standard Commercial General Liability (CGL) coverage form defines who qualifies as an insured. The status of owners, managers, and related parties depends directly on how the business is legally structured in the policy Declarations. Insured status for certain people is limited to their business roles, but the standard CGL form does not impose a general rule that every covered claim must arise from the business activity described in the Declarations.
If the named insured is an individual, that person and their spouse qualify as insureds, but only regarding the conduct of a business of which the individual is the sole owner. If designated as a partnership or joint venture, the partners or co-venturers and their spouses are insureds, but only with respect to the conduct of the business. For a limited liability company (LLC), members are insureds regarding the conduct of the business, while LLC managers are insureds with respect to their duties as managers.
When the named insured is a corporation, executive officers and directors qualify as insureds solely with respect to their duties as officers or directors. Corporate stockholders are insureds, but only regarding their liability as stockholders. If the named insured is a trust, trustees are insureds strictly with respect to their duties as trustees. No person or organization is an insured for the conduct of any current or past partnership, joint venture, or LLC that is not shown as a named insured in the Declarations.
A newly acquired or formed organization qualifies as a named insured if the insured maintains ownership or majority interest, provided no other similar insurance is available. However, this automatic status never applies to partnerships, joint ventures, or limited liability companies. It also does not cover bodily injury or property damage that occurred, or personal and advertising injury offenses committed, before the acquisition or formation. This automatic coverage expires after 90 days or at the end of the policy period, whichever comes earlier.
| Entity Type | Parties Granted Insured Status | Scope of Insured Status |
|---|---|---|
| Sole Proprietorship (Individual) | Individual owner and spouse | Conduct of a business solely owned by the individual |
| Partnership or Joint Venture | Partners or co-venturers and spouses | Conduct of the partnership or joint venture business |
| Limited Liability Company (LLC) | Members and managers | Members: conduct of business; Managers: duties as managers |
| Corporation | Executive officers, directors, and stockholders | Officers and directors: their duties; Stockholders: stockholder liability |
| Trust | Trustees | Duties as trustees |
Common mistakes
- Assuming automatic 90-day coverage applies to all newly formed entities: The standard form strictly excludes new partnerships, joint ventures, and LLCs from automatic coverage.
- Believing that multiple named insureds each get their own separate set of limits: The policy limits in the Declarations apply as a shared pool, regardless of how many insureds or claims are involved.
- Thinking defense costs exhaust the Each Occurrence or Aggregate limits: Defense costs are paid in addition to the stated policy limits.
- Confusing how payments affect the two aggregate limits: Payments under Coverage B or premises slip-and-falls reduce the General Aggregate, but they never deplete the Products-Completed Operations Aggregate.
Key points
- Section II defines insured status based on entity structure, covering individuals, partners, LLC members and managers, corporate officers, directors, stockholders, and trustees solely within the scope of their designated business roles.
- Employees and volunteer workers are insureds for their business duties, subject to exclusions for specified injuries to the named insured and fellow workers, professional healthcare services, and specified property damage; when the named insured is not in the healthcare business, the standard form preserves insured status for qualifying first aid or Good Samaritan services.
- Under the standard common policy conditions, the first named insured is responsible for premiums, receives return premiums, may request cancellation, and is authorized to make policy changes with the insurer's consent.
- Section III limits apply as a shared total regardless of the number of insureds or claimants, and defense costs are paid in addition to these limits.
- The Each Occurrence limit caps total Coverage A damages and Coverage C medical expenses from a single event; payments under the Medical Expense and Damage to Premises Rented to You sublimits reduce this available limit.
- The General Aggregate applies to Coverage A (excluding products-completed operations), Coverage B, and Coverage C, while the Products-Completed Operations Aggregate functions as a separate, independent annual cap.
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