Certificates of Insurance: Understanding “Primary and Non-Contributory”
- Jonathan Zschau
The terms “primary and non-contributory” often appear in insurance contracts, especially in Certificates of Insurance (COIs). These terms are crucial in determining how insurance coverage is applied in the event of a claim, particularly when multiple policies might cover the same loss. To understand their significance, it’s essential to break down the meaning of each term and its implications for insured parties and third parties.
What Does “Primary” Mean in Insurance?
When an insurance policy is designated as primary, it means that this policy will respond to a covered claim before any other policies apply. In the context of a COI, this designation ensures that the listed insurance is the first layer of protection. Other applicable insurance policies, such as those held by additional insureds or third parties, will only respond once the primary policy’s coverage limits are exhausted.
For example, consider a general contractor (GC) who requires a subcontractor to add the GC as an additional insured on the subcontractor’s policy. If the subcontractor’s insurance is primary, it will cover claims arising from the subcontractor’s work before the GC’s insurance comes into play.
What Does “Non-Contributory” Mean?
The term non-contributory means that the primary insurance policy will pay the full claim amount (up to its policy limits) without seeking contribution from other policies that might also apply. Typically, when multiple insurance policies cover the same loss, they can share the financial responsibility based on their respective policy terms. However, a non-contributory designation waives this right, ensuring that the additional insured’s policy isn’t tapped for contribution.
In practical terms, non-contributory status protects the additional insured from sharing in the claim costs when another party’s insurance is the primary coverage.
Why Does “Primary and Non-Contributory” Matter?
Risk Allocation The “primary and non-contributory” endorsement clarifies the priority of coverage and prevents disputes over which policy should respond first. It ensures that the party providing the insurance (e.g., a subcontractor) fully assumes responsibility for the risks associated with their work or services.
Protecting Additional Insureds Additional insureds, such as clients, landlords, or general contractors, often require a primary and non-contributory endorsement to protect their own insurance policies. This provision ensures that their insurance is preserved as a backup, only kicking in if the primary policy is exhausted.
Compliance with Contractual Requirements Many contracts explicitly require parties to carry insurance that is both primary and non-contributory. Providing a COI with this language ensures compliance and helps avoid potential legal disputes or delays in project execution.
Minimizing Financial Exposure For additional insureds, this designation minimizes their financial exposure by prioritizing the named insured’s coverage. This is particularly important in industries like construction, where liability risks are high.
How Is “Primary and Non-Contributory” Applied in Practice?
To include this provision, the named insured must request a policy endorsement from their insurer. The endorsement adds specific language confirming that the insured’s policy is primary and will not seek contribution from other applicable insurance policies. This language is then reflected in the COI, providing written proof of the policy’s terms to the requesting party.
Key Considerations
Verify Coverage: Merely including “primary and non-contributory” language in a COI does not guarantee that the policy provides this coverage. Always verify the actual policy endorsement.
Policy Limits: Ensure that the primary policy’s limits are sufficient to cover potential liabilities.
Contractual Obligations: Review agreements carefully to ensure compliance with specific insurance requirements, including additional insured status and primary/non-contributory endorsements.
Conclusion
The “primary and non-contributory” designation is a critical aspect of insurance coverage that allocates risk effectively and protects additional insureds. Whether you’re a business owner, contractor, or vendor, understanding these terms can help you manage liabilities, comply with contractual requirements, and foster better business relationships.
Disclaimer
This article is for informational purposes only and is not intended to stand alone as insurance or legal advice. Individual circumstances may vary, so when in doubt, contact Partridge-Zschau directly to discuss your specific needs.