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What Does Primary & Noncontributory Mean in Insurance?

How Primary & Noncontributory Endorsements Define Liability & Reduce Risk

The language of insurance policies can be quite tricky—especially as additional parties become involved in business operations or projects. When multiple parties are included under a policy as additional insureds, it can be challenging to know who should contribute to a claim first, and to what degree.

This is where primary and noncontributory endorsements come into play.

• Primary endorsements designate the first party responsible for contributing to a claim before another person’s policy applies.
• Noncontributory endorsements prevent insurers from seeking contributions from other insureds’ policies and specify whether and which other parties are required to contribute if a claim exceeds coverage limits.

These endorsements are common practices in commercial general liability insurance among general contractors and subcontractors, property owners and general contractors, landlords, tenants, and automobile liability and worker's compensation policies.

They not only define the designated order and requirements of parties responding to a claim, but fundamentally protect businesses from liability.

At first glance, these may seem similar to a waiver of subrogation, however, they’re fairly different. Primary and noncontributory endorsements shield additional insureds from contributing during a claim, while a waiver of subrogation prevents insurers from seeking reimbursement from negligent third parties for amounts already paid to a claim.

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When working with various vendors, it is important to not only maintain full visibility over the language of primary and noncontributory endorsements within policies, but also the entirety of third-party processes.

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Video Transcript

Primary and noncontributory endorsements or policy language make a specific insurance policy primary, meaning, to go first, and noncontributory, meaning, without contribution, over other insurance policies of a specific party; this party is typically an additional insured.

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.

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 general contractor and all subcontractors to name the owner as an additional insured on a primary and noncontributory 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 general contractor and the sub-contractor, who caused the injury due to improper rigging. When the owner receives the claim they tender it to the general contractor, who then tenders the claim to the subcontractor.

The subcontractor’s insurance, which names the owner and the general contractor as additional insureds on a primary and noncontributory basis, responds to the claim on behalf of all the parties. The subcontractor’s insurance responds first and without seeking contribution from the insurance policies of the owner and the general contractor. In the event that the subcontractor’s insurance limits are completely exhausted by the claim, then the policies of the general contractor and owner will respond in accordance with the contract requirements.

“The contract usually requires that the general contractor’s insurance responds on a primary and noncontributory basis, for the owner who is an additional insured, thus creating another layer of protection for the owner.”

-Adam Lopez