Q: What is the significance and use of the separation of insureds clause?

Response 1: In the ISO commercial general liability policy, the separation of insureds condition clarifies that the word “insured” throughout the policy applies severally and not collectively. In older CGL editions, the condition was referred to as the “severability” clause.

Essentially, think of it as though a separate policy was issued to each insured, except when applying limits. The one exception to this is when an injured employee sues a fellow employee, there is no coverage for the employee being sued, even though “employees” are an insured under the policy because of the fellow employee exclusion in the Who is an Insured section of the CGL.

There are other ramifications for the separation of insureds condition but overall, it’s a net positive and is standard in the ISO CGL, business auto policy and business owners policy. Some umbrella policies do not have such a condition and, in fact, may contain a “cross-liability” exclusion, so be careful with umbrellas.

Response 2: This article by The Balance provides a good explanation of the Separation of Insureds clause found in the standard ISO general liability policy.

Response 3: In general, the purpose of the clause is to provide coverage to the innocent insured. Separation of insureds can prevent clauses in the policy form, such as exclusions, certain items noted in the application or other issues from applying to a particular insured. Without it, a coverage issue for one insured could cause all insureds to lose their coverage.

Response 4: It means that each insured is entitled to their own defense and coverage judged on their characteristics and situation. However, having two definitions of an insured does not increase the policy limits.

For example, a property manager and property owner are insured under the same CGL policy. The property manager does something that results in a claim and the carrier denies coverage for willful acts or some other reason. However, what was a willful act on the part of the property manager might not have been a willful act on the part of the property owner who incurs the vicarious liability of the acts of the property manager. Therefore, the carrier may deny coverage to the property manager but must provide defense and coverage to the property owner.

Response 5: The best source of this information is via subscription to IRMI’s commercial lines reference materials. Or, you can simply search online for “separation of insureds clause” and you’ll get a bunch of articles already written on the subject, including two free articles from IRMI: What Does “Separation of Insureds” Mean—Part 1 and What Does “Separation of Insureds” Mean—Part 2.

This question was originally submitted by an agent through the VU’s Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.