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Lesson 4 part I: who is an insured?

Objectives

* Discuss the classifications of insureds under the CGL coverage form

* Distinguish between named insureds and other insureds in the CGL form

* Describe situations where an employee of the named insured qualifies for CGL coverage

* Discuss who has insured status under the CGL form upon the death of the named insured

* Describe exceptions and conditions that can affect who is insured under the CGL form

Key Terms

Consequential damage actions--An action for damages that does not flow directly and immediately from the act of a party, but only from the consequences or results of an act. This action may be brought by the spouse, child, parent, or sibling of a co-worker injured by another co-worker.

Employee--A person employed by the named insured; employee includes leased workers but not temporary workers. Employees of the named insured have insured status in certain circumstances.

Executive officer--A person holding any of the officer positions created by the charter, constitution, by laws or similar governing document of the named insured organization. Executive officers of the named insured have insured status in certain circumstances.

Insureds--Persons or entities--other than the named insured--that are granted insured status under the policy.

Legal representative--In the case of the death of the named insured, its legal representative has all of the insured's rights and duties under the coverage form.

Named insured--The person or entity specifically designated by name in the policy. Named insureds have certain rights and duties under the CGL that do not apply to other insureds. The named insured might be a person or a business organization, such as a corporation, partnership, or limited liability company.

All of the knowledge you have gained to this point would be meaningless without a firm understanding of just who is insured under the CGL coverage form. The CGL coverage form allows a number of entities to qualify as insureds under the policy in various situations.

Of course, there is the "named insured," who is the "owner" of the policy. By policy definition, wherever the word "you" or "your" is used in the coverage form, the reference is to the named insured. But others qualify as insureds, also: employees of the named insured, officers of the corporation, persons acting as real estate manager, and others.

Section II of the CGL--"who is an insured"--defines those persons and organizations that qualify as insureds.

Who is an Insured

The "named insured" is that person or entity, such as a corporation or other business formation, which is specifically designated by name in the policy.

Generally, the named insured has certain rights and obligations under the policy that do not extend to others that may qualify as insureds.

For example, the named insured is generally responsible for premium payments and is entitled to receive notices from the insurer, (such as notice of cancellation, non-renewal, or change in coverage).

Under the provisions of the CGL, if the named insured is an individual, his or her spouse is also an insured. However, the spouse is an insured only with respect to the conduct of a business of which the named insured is the sole owner.

The policy does not include any other family members as insureds--regardless of how they may be involved in the conduct of the business.

If the named insured is a partnership, the partnership and all partners are insureds. The policy gives insured status to the spouses of the partners--again with respect only to the conduct of the named insured's business.

The same provisions are present for a named insured that is a joint venture formation.

A limited liability company or LLC can be a named insured, and its members are insureds with respect to the conduct of the business. The managers of an LLC are also insureds, but only with respect to their duties as managers.

If the named insured is something other than the entities already described--such as a corporation--the following individuals receive insured status under the CGL:

* The corporate executive officers and directors, with respect to their duties as such.

* Stockholders in the corporation, with respect to their liability as stockholders.

Employees other than executive officers are also insureds for acts within the scope of their employment by the named insured. Volunteer workers while performing duties related to the conduct of the named insured's business are also insureds. A volunteer worker is a person who is not an employee of the named insured and who donates his or her work, and who acts at the direction of and within the scope of duties determined by the named insured. A volunteer worker is not paid a fee, salary, or other compensation by the named insured for the work.

There are, however, some situations in which employees or volunteer workers are not insureds. These situations are in addition, of course, to regular policy exclusions.

First, employees and volunteer workers are not insureds for incidents of bodily or personal injury to the named insured.

For example: an employee argues with his boss, a sole proprietor. During the argument, the employee takes a swing at the boss, hits and injures him. The CGL will not cover the employee if the boss chooses to sue him.

The policy also does not cover the employee or volunteer worker for liability arising out of injuries to partners, members, or fellow employees or fellow volunteer workers.

Also, no coverage is provided for third-party actions involving co-workers in cases where the relatives of an injured employee sue an employee who caused an injury.

For example, if an employee is killed or injured through the negligent action of another employee, the wife or dependent children of the killed or injured employee may have a legal action against the negligent employee. The CGL would not provide coverage in such a lawsuit.

The CGL also provides no coverage for consequential damage actions. In the previous example where an employee struck and injured the owner of the company, if the owner's wife sued the employee for loss of companionship, the policy would not provide coverage for the employee.

Another exception removes insured status from an employee or volunteer worker for liability arising out of providing or failure to provide professional health care services.

For example: Pat Jones is a nurse who works for XYZ Manufacturing. She was hired to provide first aid to employees. XYZ's CGL policy does not cover Pat for liability arising out of her role of providing health care services.

Finally, employees and volunteer workers are not insureds for damage to certain types of property. This includes:

* property that the named insured owns, occupies, or uses,

* property that is in the care, custody, or control of the named insured or any employee or volunteer worker who is an insured, and

* property that belongs to partners or members

Thus, if an employee negligently damages the office furniture of the named insured, the named insured's CGL form does not provide that employee with insured status should the employer choose to sue the employee for the damage?

Remember, the CGL policy is a liability coverage form, not first-party property coverage, such as the commercial property policy. It does not cover the property of the insured, but liability arising out of insured acts or occurrences.

In the event that a named insured dies, the CGL extends insured status to the following:

* Any person or organization that has "proper temporary custody" of the named insured's property after his or her death. These custodians are insured only with respect to liability arising out of the maintenance or use of the property until a legal representative of the named insured has been appointed.

* Once a representative has been appointed, the legal representative is an insured, but only with respect to his duties as such. The legal representative has all of the named insured's rights and duties under the CGL coverage forms.

Anyone acting as the named insured's real estate manager--other than an employee or volunteer worker--is also an insured under the current CGL coverage form.

For example: If the insured hires a management company to collect rents or arrange leases for premises owned by the named insured corporation, the management firm would qualify as an insured in the event a legal action arises out of its duties to the named insured.

The CGL provides that newly acquired or newly formed organizations receive "named insured" status, subject to certain conditions:

* The new organization may not be a partnership, joint venture, or Limited Liability Company.

* The named insured must maintain ownership or majority interest in the new organization.

There are several conditions that apply to the named insured status of newly acquired or newly formed organizations:

* No other similar insurance may be available to the organization.

* The new organization receives "named insured" status for only 90 days or until the policy expires, whichever is earlier.

* Coverages A and B (bodily injury and property damage liability and personal injury and advertising injury liability) do not apply to events or offenses that occurred before the named insured acquired or formed the organization.

The final provision of section II addresses undesignated joint ventures or partnerships or limited liability companies. No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture or limited liability company that is not shown as a named insured in the policy declarations.

The CGL makes it clear that such partnerships or ventures or LLCs must be shown as a named insured if the named insured wants to continue coverage under its current policy for those ventures.

Continued coverage for a new joint venture or partnership or LLCs will be added only after all the parties to the insurance contract agree to add it to the policy.

Self Review Quiz

1. Which one of the following is not a right or obligation reserved for the named insured under a CGL policy?

a. payment of the premium

b. receipt of notices of cancellation and non-renewal.

c. receipt of notices of change to the policy.

d. receipt of a copy of the policy application.

2. If the named insured is a partnership, the spouse of a partner receives the same protection as the named insured.

a. True

b. False

3. "Members" and "managers" are unique to which kind of corporate organization under the CGL provisions:

a. partnership

b. proprietorship

c. limited liability company

d. corporation

4. For which one of the following would an employee of a CGL insured receive protection under the employer's CGL?

a. the negligent injury of a customer on the premises

b. the negligent injury of a fellow employee

c. the negligent injury of a supervisor

d. the failure to provide medical services

5. Upon the death of a named insured the CGL extends insured status to the spouse and children only.

a. True

b. False

Self Review Answers

1. Which one of the following is not a right or obligation reserved for the named insured under a CGL policy?

d. receipt of a copy of the policy application.

The named insured has certain rights and obligations under the policy. For example, the named insured is generally responsible for premium payments and is entitled to receive notices from the insurer, (such as notice of cancellation, non-renewal, or change in coverage).

2. If the named insured is a partnership, the spouse of a partner receives the same protection as the named insured.

b. False

Under the provisions of the CGL, if the named insured is a partnership, the spouse of a partner is also an insured. However, the spouse is an insured only with respect to the conduct of the partnership's business.

3. "Members" and "managers" are unique to which kind of corporate organization under the CGL provisions:

c. limited liability company

A limited liability company or LLC can be a named insured, and its members are insureds with respect to the conduct of the business. The managers of an LLC are also insureds, but only with respect to their duties as managers.

4. For which one of the following would an employee of a CGL insured receive protection under the employer's CGL?

a. the negligent injury of a customer on the premises

Employees other than executive officers are also insureds for acts within the scope of their employment by the named insured. However, the policy does not cover the employee for liability arising out of injuries to partners, members, or fellow employees.

5. Upon the death of a named insured the CGL extends insured status to the spouse and children only.

b. False

Upon the death of a named insured the CGL extends insured status to any person or organization who has proper temporary custody of the named insured's property.
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Publication:Commercial General Liability Explained
Date:Jan 1, 2010
Words:2111
Previous Article:Lesson 3 part I: supplementary payments / limits of insurance.
Next Article:Lesson 5 part I: CGL conditions.

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