What is the purpose of the Separation of Insureds provision?

• A. It pools all insureds together under one limit.
• B. It treats each insured separately for purposes of limits and exclusions, preventing one insured's claims from exhausting another's coverage.
• C. It only applies to the named insured.
• D. It allows cross-liability between insureds.

Answer: (B)

Separation of insureds means the policy treats each insured as its own entity for purposes of limits and exclusions, so one insured’s claims don’t drain another’s coverage. In a liability policy with multiple insureds, this provision keeps the claims against each insured on their own tab, preventing a single suit or set of claims from exhausting the entire limit and leaving the others without coverage. It also allows exclusions or endorsements to apply to each insured independently, so a restriction that affects one insured doesn’t automatically affect the others. In practice, this preserves the intended protection for every insured under the policy. That’s why this option best describes the purpose: it prevents one insured’s claims from exhausting another’s coverage.