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spousal coverage extension

The spousal coverage extension is the wording in an insurance policy that confers "insured" status upon spouses of "insureds" under that policy.

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Such coverage is necessary because when confronted by a claim, insureds often transfer assets to a spouse as a means of protecting their assets in the event of an unfavorable outcome in a lawsuit pending against them. However, in recent years, plaintiffs' attorneys have recognized such tactics and often respond by also naming spouses in lawsuits. Spousal coverage extensions state that the policy applies only when a claim is made against a spouse because of either spousal status or spousal ownership in specific assets. However, coverage does not apply to the direct acts of a spouse in causing a claim. For example, there would be no coverage for an employee's husband (who is not employed by the insured organization) if he were accused of sexual harassment that allegedly took place at a company picnic hosted by his spouse's (the employee's) company.