Insurance under a commercial general liability (CGL) insurance policy is applied to each covered entity (named insured and other insureds) as if each had a separate policy. The only exception to this condition is that the policy's limits of liability will be applicable only one time for all insureds, regardless of the number covered under the policy. CGL limits are per occurrence or per offense, not per insured.
However, the way that coverage applies separately to each insured differs between named insureds and other insureds. Subparagraph (a) of the separation of insureds condition states that CGL insurance applies "as if each Named Insured were the only Named Insured." With respect to other insureds under the policy, insurance applies "separately to each insured against whom claim is made or suit is brought."
The Case of Multiple Named Insureds
The full significance of subparagraph (a) is not often brought to light by a typical general liability claim, in part because relatively few CGL policies have multiple named insureds. But the subparagraph means that, when a named insured seeks coverage under the policy, policy provisions referring to "you"—and to any other persons or organizations that have insured status because of their relationship to "you"—are to be read as if any other named insureds under the policy did not exist.
For instance, imagine a CGL policy under which two related businesses—Alpha Wholesale and Omega Retail—are both named insureds. An employee of Alpha, while on Omega's premises, causes damage to some of Omega's property, and Omega makes a claim against Alpha for the repair of the damage.
The policy excludes property damage to "property you own, rent, or occupy," an exclusion that would seem to eliminate coverage for any damage to Omega's property, since Omega—as a named insured—is "you" under the policy. But Alpha, the named insured that is seeking coverage under the policy for the claim against it, is entitled to an interpretation of the exclusion in which "property you own" means only property owned by Alpha. That is, it is entitled to read the exclusion as if it were the only named insured.
Case Law Showing Coverage Implications
A decision of the US Tenth Circuit Court of Appeals—West Am. Ins. Co. v. AV&S, Inc.,
145 F.3d 1224 (10th Cir. 1998)—illustrates some of the coverage implications of this provision.
In that case, an employee of a pizza parlor, while driving his own car to make deliveries for the employer, struck and injured a pedestrian. The pedestrian sued the driver, the pizza parlor/employer, the corporation for which the employer was a franchise operation, and other franchisees of the corporation. The corporation and all the franchisees were named insureds on the same businessowners policy, which contained coverage terms and exclusions identical to those of the standard CGL policy.
Since the owner-driver of the auto in question had insured status as an employee of the named insured pizza parlor, the insurer denied coverage on the basis of the standard auto exclusion, as follows:
"bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any … auto … owned or operated by or rented or loaned to any insured.
In the resulting coverage dispute that ultimately came before the Tenth Circuit, the franchising corporation and the other franchisees argued that the policy's separation of insureds condition prevented application of the auto exclusion to them. The circuit court agreed, focusing its analysis on the stipulation that the policy's coverages are to be applied "as if each Named Insured were the only Named Insured."
If the franchising corporation, or any of the named insured franchisees other than the one whose employee caused the accident, were "the only named insured" under the policy, then the employee would not themselves be the employee of a named insured under the policy and would not have "insured" status. Therefore, the auto exclusion would not apply.
"Separation of Insureds" Condition and the Employers Liability Exclusion
The "separation of insureds" condition functions in concert with the CGL policy's multiple references to "the insured" or "an insured" to determine coverage for losses that involve more than one insured under the policy.
Perhaps the most important policy provision under which these distinctions become important is the employers liability exclusion, which eliminates coverage for "bodily injury to an employee of the insured." This exclusion is sometimes invoked, improperly, as a basis for denying claims brought by an employee of any insured under the policy, regardless of which insured the claim is against.
In Archer Daniels Midland v. Burlington Ins. Co.,
785 F. Supp. 2d 722 (N.D. Ill. 2011), an employee of a window-cleaning company sued a building owner, which was a client of the employer, when he fell while doing his job and was injured. The building owner tendered the claim to the window-cleaning company's CGL insurer—under whose policy the building owner was an additional insured. The insurer denied coverage partly on the basis of the standard employers liability exclusion.
The insurer's argument was that the injured worker was an employee of "the insured"—that is, the named insured window-cleaning company, and that claims brought by that employee for bodily injury were excluded, even if the claim was made against someone other than the injured worker's own employer.
A federal district court cited the CGL "separation of insureds" condition as the proper basis for interpreting the employers liability exclusion.
Cross-Liability Endorsements
The Archer Daniels Midland decision is one of a long line of cases that establish, on the basis of the "separation of insureds" condition, that references to "the insured" in a CGL policy are to the insured against which the claim or suit has been made and is seeking coverage—not to other persons or organizations that also are insureds under the policy.
The separation of insureds condition means that the policy covers liability claims brought by one insured against another insured (often referred to as cross-liability claims) unless coverage is precluded by some other provision, such as an exclusion. There is much confusion in the insurance industry regarding the need for so-called cross-liability endorsements, which affirm the applicability of coverage for a suit brought by one insured (such as an additional insured) against another insured (such as the named insured). The separation of insureds condition makes cross-liability endorsements unnecessary with respect to Insurance Services Office, Inc. (ISO), promulgated CGL policies.
This provision may also cause the policy to cover the employee of one insured for a suit brought by the employee of another insured since they are not fellow employees. However, whether the fellow employee exclusion in the "Who Is an Insured" section of the policy would preclude such coverage may be a potential subject of litigation.
Furthermore, an ISO endorsement introduced in 2019, Exclusion—Cross Suits Liability (CG 40 10 12 19), was developed to eliminate coverage for cross-liability suits brought by one named insured against another named insured on the policy.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Insurance under a commercial general liability (CGL) insurance policy is applied to each covered entity (named insured and other insureds) as if each had a separate policy. The only exception to this condition is that the policy's limits of liability will be applicable only one time for all insureds, regardless of the number covered under the policy. CGL limits are per occurrence or per offense, not per insured.
However, the way that coverage applies separately to each insured differs between named insureds and other insureds. Subparagraph (a) of the separation of insureds condition states that CGL insurance applies "as if each Named Insured were the only Named Insured." With respect to other insureds under the policy, insurance applies "separately to each insured against whom claim is made or suit is brought."
The Case of Multiple Named Insureds
The full significance of subparagraph (a) is not often brought to light by a typical general liability claim, in part because relatively few CGL policies have multiple named insureds. But the subparagraph means that, when a named insured seeks coverage under the policy, policy provisions referring to "you"—and to any other persons or organizations that have insured status because of their relationship to "you"—are to be read as if any other named insureds under the policy did not exist.
For instance, imagine a CGL policy under which two related businesses—Alpha Wholesale and Omega Retail—are both named insureds. An employee of Alpha, while on Omega's premises, causes damage to some of Omega's property, and Omega makes a claim against Alpha for the repair of the damage.
The policy excludes property damage to "property you own, rent, or occupy," an exclusion that would seem to eliminate coverage for any damage to Omega's property, since Omega—as a named insured—is "you" under the policy. But Alpha, the named insured that is seeking coverage under the policy for the claim against it, is entitled to an interpretation of the exclusion in which "property you own" means only property owned by Alpha. That is, it is entitled to read the exclusion as if it were the only named insured.
Case Law Showing Coverage Implications
A decision of the US Tenth Circuit Court of Appeals—West Am. Ins. Co. v. AV&S, Inc., 145 F.3d 1224 (10th Cir. 1998)—illustrates some of the coverage implications of this provision.
In that case, an employee of a pizza parlor, while driving his own car to make deliveries for the employer, struck and injured a pedestrian. The pedestrian sued the driver, the pizza parlor/employer, the corporation for which the employer was a franchise operation, and other franchisees of the corporation. The corporation and all the franchisees were named insureds on the same businessowners policy, which contained coverage terms and exclusions identical to those of the standard CGL policy.
Since the owner-driver of the auto in question had insured status as an employee of the named insured pizza parlor, the insurer denied coverage on the basis of the standard auto exclusion, as follows:
In the resulting coverage dispute that ultimately came before the Tenth Circuit, the franchising corporation and the other franchisees argued that the policy's separation of insureds condition prevented application of the auto exclusion to them. The circuit court agreed, focusing its analysis on the stipulation that the policy's coverages are to be applied "as if each Named Insured were the only Named Insured."
If the franchising corporation, or any of the named insured franchisees other than the one whose employee caused the accident, were "the only named insured" under the policy, then the employee would not themselves be the employee of a named insured under the policy and would not have "insured" status. Therefore, the auto exclusion would not apply.
"Separation of Insureds" Condition and the Employers Liability Exclusion
The "separation of insureds" condition functions in concert with the CGL policy's multiple references to "the insured" or "an insured" to determine coverage for losses that involve more than one insured under the policy.
Perhaps the most important policy provision under which these distinctions become important is the employers liability exclusion, which eliminates coverage for "bodily injury to an employee of the insured." This exclusion is sometimes invoked, improperly, as a basis for denying claims brought by an employee of any insured under the policy, regardless of which insured the claim is against.
In Archer Daniels Midland v. Burlington Ins. Co., 785 F. Supp. 2d 722 (N.D. Ill. 2011), an employee of a window-cleaning company sued a building owner, which was a client of the employer, when he fell while doing his job and was injured. The building owner tendered the claim to the window-cleaning company's CGL insurer—under whose policy the building owner was an additional insured. The insurer denied coverage partly on the basis of the standard employers liability exclusion.
The insurer's argument was that the injured worker was an employee of "the insured"—that is, the named insured window-cleaning company, and that claims brought by that employee for bodily injury were excluded, even if the claim was made against someone other than the injured worker's own employer.
A federal district court cited the CGL "separation of insureds" condition as the proper basis for interpreting the employers liability exclusion.
Cross-Liability Endorsements
The Archer Daniels Midland decision is one of a long line of cases that establish, on the basis of the "separation of insureds" condition, that references to "the insured" in a CGL policy are to the insured against which the claim or suit has been made and is seeking coverage—not to other persons or organizations that also are insureds under the policy.
The separation of insureds condition means that the policy covers liability claims brought by one insured against another insured (often referred to as cross-liability claims) unless coverage is precluded by some other provision, such as an exclusion. There is much confusion in the insurance industry regarding the need for so-called cross-liability endorsements, which affirm the applicability of coverage for a suit brought by one insured (such as an additional insured) against another insured (such as the named insured). The separation of insureds condition makes cross-liability endorsements unnecessary with respect to Insurance Services Office, Inc. (ISO), promulgated CGL policies.
This provision may also cause the policy to cover the employee of one insured for a suit brought by the employee of another insured since they are not fellow employees. However, whether the fellow employee exclusion in the "Who Is an Insured" section of the policy would preclude such coverage may be a potential subject of litigation.
Furthermore, an ISO endorsement introduced in 2019, Exclusion—Cross Suits Liability (CG 40 10 12 19), was developed to eliminate coverage for cross-liability suits brought by one named insured against another named insured on the policy.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.