Why should You require Primary and Non-contributory wording in addition to additional insured?

Primary & Non-Contributory in Description of Operations

 

 

Why should you  require Primary and Non-Contributory Wording?

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.

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 will determine which policy will pay the claim.

The NONCONTRIBUTORY part means that the policy will not ask  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.

Lets use the following example to understand the importance of  primary & noncontributory wording on a policy.  An owner purchases land to develop an office building in downtown Chicago. The owner hires a General Contractor  to oversee and manage the construction of the office building.  The general contractor will  hire trade and subcontractors to build this office building.

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 pedestrian when backing up his truck.

The subcontractor did not see the pedestrian when backing up his truck causing the pedestrian to fall and break her back.. The pedestrian sues the Owner, the GC and the sub-contractor, who caused the injury due to negligent driving. 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.

 

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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.  In order for this wording to be enforced, it must be expressed in a written contract.

 

 

 

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