Who is an ‘Insured?’ Commercial Coverage!
May 23, 2008 by Christopher J. Boggs, CPCU, ARM, ALCM
If a previously owned, or even currently owned, LLC or partnership is not specifically listed in the schedule of named insureds, there is NO coverage for any previous actions or any products-completed operations claims.
Following is a ready-reference outline defining who is an “Insured.”; These definitions are paraphrased from standard ISO commercial forms. This outline does not define “insured”; found in executive risk policies or other specialty coverage forms as such definitions can vary substantially among various carriers. Several terms will be defined following the outline.
For coverage to apply, the property must meet the definition of “Covered Property;” it’s not necessarily related to insured status.
Commercial General Liability (CGL) and Business Owner Policy (BOP)
“You”; (Named Insured)
Additional “Named” Insureds By Entity Type (Coverage equal to “You”;)
• Individual . You and Spouse for liability arising from the conduct of the business.
• Partnership . You, Partners, and Spouses for liability arising from the conduct of the business.
• Joint Venture . You, Members, and Spouses (if applicable) for liability arising from the conduct of the business.
• Limited Liability Company . You and members for the conduct of the business; Managers for duties as manager.
• Other Organization . You, executive officers, and directors with respect to their duties. Stockholders for their vicarious liability as stockholders.
• Trusts . You and Trustees(for their duties as such) (status as an automatic insured not extended to Trusts in the BOP)
Automatic Insureds for All Entity Types
• Employees . For acts within the scope of their employment or while performing duties related to the conduct of the business (with exceptions and exclusions).
• Volunteer Workers . Only while performing duties related to the conduct of the business.
• Real Estate Managers
• Any person or entity having temporary custody of property if You die.
• Legal Representative if You die (given all the rights and duties under the coverage).
Newly Acquired or Formed Organizations over which “You”; maintain ownership or majority interest. Automatic coverage afforded for only a limited amount of time (90 to 180 days).
NO Coverage for any Previous, Newly Formed, or Newly Acquired: Partnership, Joint Venture, or Limited Liability Company. To have coverage – entity MUST be listed on the policy
Liability Coverage Part (Based on Symbol Chosen)
“You”; (Named Insured) using any covered “Auto”;
• Anyone else using a covered auto with permission
• Employees, partners, members, or a lessee or borrower (or any of their employees) while moving property to or from a covered auto.
• Anyone liable for the conduct of any of the above (vicarious liability)
No Liability Coverage is extended to:
• The owner of a hired or borrowed vehicle qualifying as a covered auto. This exclusion includes autos owned by a partner, or a member of an LLC.
• Your employee for the use of a vehicle owned by the employee.
• Someone using a covered auto in an auto-related business unless it is the business insured by the policy.
Physical Damage Coverage Part (Based on Symbol Chosen)
• Coverage extends from a vehicle that qualifies as a “Your Covered Auto”; rather than an individual or entity.
Medical Payments Coverage Part (Added by Endorsement)
“You,”; and Family Member (if the insured is an Individual) while “occupying”; an auto or when struck as a pedestrian.
• Any other person “occupying”; a covered auto
or temporary substitute.
Uninsured / Underinsured Motorist Coverage Part (Added by Endorsement)
Named Insured (If the insured is an Individual)
• Any person “occupying”; a covered auto or temporary substitute.
• Consequential damages suffered by a third party due to injury to any person in the above list
Property Damage if the insured is a partnership, a limited liability company, a corporation, or any form other than an individual.
General Liability Coverage Part
• Same definition as the underlying General Liability Coverage Part
Auto Liability Coverage Part
• Same as the underlying Auto Coverage Part
• Additional Insureds added to the “underlying insurance”; will automatically be covered by the umbrella policy.
• If coverage as an additional insured is required by contract, the umbrella policy will limit its payment to the amount required by the contract less any payment made by the underlying liability coverage.
• Coverage provided to the additional insured will not be broader in the umbrella than the coverage provided by the underlying policy; becomes an excess policy in relation to Additional Insureds.
Clarifications and Explanations of Commercial Terms
Commercial Lines Forms define “You”; simply as the individual or entity named in the policy, a.k.a. – the named insured. But, while the definition in commercial policies is simple, be aware that some entities must be specifically named as a “You”; to garner any coverage.
NO coverage exists for previously owned, newly acquired, or newly formed 1) Partnerships, 2) Limited Liability Companies, or 3) Joint Ventures in the commercial general liability policy (CGL), the Business Owners Policy (BOP), or the commercial umbrella policy (CU). Coverage can only be extended to one of these entity types by specifically naming them on the subject policy giving them status as a “You”; by definition.
Business enterprises may change their legal structure to allow for growth and/or investment. A business might start out as a partnership or LLC and convert to a corporate structure for business, legal and/or tax reasons. When this reorganization occurs, liability coverage ceases for the previously existing partnership or LLC unless such entity remains a named insured (a “You”;) on the policy.
Likewise, the insured entity may form or purchase a subsidiary LLC that compliments the products or services offered by the parent company. No coverage is extended for a newly formed or acquired LLC, not even for a short period of time unless and until this new entity is specifically named on the policy.
Joint ventures create a unique exposure as they are essentially a fictitious entity temporarily created to accomplish a specific purpose. Unless these joint ventures are named during existence and forever after, no coverage exists for any claims that might arise out of the activities or products that are created.
Correcting this gap is as simple as naming any and all partnerships, LLC’s or joint ventures currently in existence or existing at any time in the past. No additional premium is required and the client is covered for prior and newly created exposures in perpetuity. By specifically naming these entities, “You”; status is bestowed giving such entity the broadest coverage available.
Members of an LLC
An LLC is a hybrid legal entity combining the advantages (mostly tax-based) of a partnership and the liability protection offered by a corporation. Members are simply the owners of the LLC and may or may not participate in the day-to-day management of the company. Members involved in the management maintain a dual role as a member and a manager.Source: www.mynewmarkets.com