Limited Liability Company as an Insured

September 12, 2012

This applies to general liability, auto, and umbrella liability. In the Section II – Who is An Insured section of the ISO based forms, part 1.c states "Your members are also insureds…" However part 4 states "No…organization is an insured with respect to the conduct of any current… limited liability company that is not listed as a Named Insured in the Declarations." So if one LLC is a member holding interest in another LLC, and not a listed Named Insured on a liability policy, is the holding LLC covered for liability related to the other LLC's operations as a member or excluded by part 4?

Stacked LLC seems to be common but not all clients identify their members individually just as most corporations do not identify their stockholders individually. My particular issue is a client who has given me a flow chart showing that one LLC (1) has majority control of two other LLC's (100% on one(2) and 95% on the other(3)). There are no individual people involved in ownership.  The 95% owned LLC (#3) then controls 100% of a fourth LLC(4). The 100% controlled LLC(#2) and the 95% interest LLC (#4) have active operations selling products to the public. The majority holding LLC (#1) is the US subsidiary of an Irish company that has not been identified. So I am assuming the controlling LLC (#1) is considered the member and manager of the "subsidiary" LLC's. To complicate a little more, a former CEO is the minority member, possibly a limited member, of the remaining 5% of #4 through another LLC (5) in which we do not know the members.

So two of the subsidiary LLC's have direct operations in place dealing with the public. The two higher level (i.e. Holding) LLC's (#1 & #3) file a consolidated tax return that includes all aspects of the subsidiary LLC's tax obligations. I am aware of no operations on the part of these two entities other than their control of the subsidiary LLC's.

Do you agree with me that I need to name each and every LLC with any interest in this business as a named insured unless they are identified as having their own insurance policies in place to cover their exposure from my clients operations? Right now their current coverage is not listing #1 or #5 on any policies.

I do appreciate your help as it will impact my conversations with future clients about any LLC operations they may have in place.

Pennsylvania Subscriber

The LLC member is an insured on the policy wherein the named insured is designated in the declarations as the LLC. But, if the member is a member of another LLC that is not the named insured, he is not covered for liability that arises out of the operations of the LLC that is not the named insured.

So, if the member is a member of LLC1 and LLC1 is the named insured on Policy A, that member is an insured. But, if that member is a member of LLC2 and that is a different LLC and is not the named insured on policy A, that member is not an insured under policy A for the operations of LLC2. A separate policy is needed for that exposure.

The CGL form is clear on this point: no person or organization is an insured with respect to the conduct of any current or past partnership, joint venture, or limited liability company that is not shown as a named insured in the declarations. So, no named insured, no coverage.

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