Thanks zazzy! That was the problem. Guess I should have looked at the man pages closer.

The insert works fine with static text, but I would like to insert a variable. I'm essentially trying to get a directory listing and insert the filename above every row in the respective file.

for file in dir1/*.*
do
filename=${file##*/}
sed "i\
${filename}" $file >> combined.txt
done

This gives the following:
sed: command garbled: file1.txt

In replaced the double quotes (") in the code above with just single quotes (') simply inserts ${filename}.

Any way to provide a variable name to the insert command?

Thanks.