What in the world does PRIMARY NON-CONTRIBUTORY mean?
Let’s jump right into this one:
Primary and non-contributory endorsements or policy language make a specific insurance policy PRIMARY, meaning, to go first, and non-contributory, meaning, without contribution, over other insurance policies of a specific party; this party is typically an additional insured.
The importance of this term is its common use in contract insurance requirements, that stipulate the order in which multiple policies triggered by the same loss are to respond. When we refer to a policy being triggered, we are referring to the policy’s ability to provide a defense and pay for a judgement.
For example, a contractor may be required to provide liability insurance to a property owner that is primary and noncontributory. This means that the contractor's policy must provide benefits before other applicable policies respond. In other words, the contractor’s policy provides benefits on a primary basis and without seeking contribution from other applicable policies.
If that lost you don’t worry, we are going to break this down for you.
Let’s look at both parts of this to explain it better. The “PRIMARY” part shows that this policy will be triggered FIRST in the event of a claim. This dictates the order of whose policy will have to pay the claim. Bear with us for a minute and we will explain this in a real-life scenario later in this video.
The NONCONTRIBUTORY part means that the policy will not seek contribution from any other policy in order to cover the claim. So, this policy is responsible for paying the claim to the extent of its insurance coverage. Only IF its limits are exhausted could the rest of the claim then be tendered to another party involved
Let’s imagine that the owner of a hotel chain, has acquired some land in downtown Chicago to build a new hotel. The owner hires a general contractor to oversee and manage the construction of the hotel. The general contractor will then hire other contractors and subcontractors to build the hotel.
The construction contract will include agreed upon insurance requirements, which requires the GC and all sub-contractors to name the owner as an additional insured on a primary and non-contributory basis.
During construction, the subcontractor causes injury to a passerby while using a crane.
The subcontractor had not properly rigged the materials which fell to the ground and created flying debris that injured the passerby. The passerby sues the Owner, the GC and the sub-contractor, who caused the injury due to improper rigging. When the owner receives the claim they tender it to the GC, who then tenders the claim to the sub-contractor. The sub-contractor’s insurance, which names the Owner and the GC as additional insureds on a primary and non-contributory basis responds to the claim on behalf of all the parties. The sub-contractor’s insurance responds first and without seeking contribution from the insurance policies of the Owner and the GC. In the event that the sub-contractor’s insurance limits are completely exhausted by the claim, then the policies of the GC and Owner will respond in accordance with the contract requirements.
The contract usually requires that the GC’s insurance responds on a primary and non-contributory basis, for the Owner who is an Additional Insured, thus creating another layer of protection for the Owner.
We hope that example was helpful in understanding the importance of Primary Non-Contributory endorsements.
Remember, primary and non-contributory endorsements can apply to different policies and they dictate the order of which parties and policies have to respond to claims first and without financial support from other involved parties insurance.
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