Understanding all the terms and phrases of the insurance world is not easy. However, understanding Primary & Noncontributory Endorsements are terms that all contractors should be aware of and look for in their policies. This is especially true for contractors working with other trades on the same job site.

Let’s start with the basics of what these terms mean.

Primary and noncontributory endorsements apply to insurance policies like Commercial General Liability (CGL), Automobile Liability, Worker’s Compensation, and others. These endorsements are a common insurance addendum that protects those listed as additional insured from costly third-party liability. When multiple policies get triggered by the same event, the endorsement specifies the order in which each insurance company responds.

• Primary – Designates that one party’s liability policy is responsible for responding to a claim first before another entity’s policy applies.
• Noncontributory – Stops the primary party’s insurer from seeking contribution from the other entity’s policy for paying a claim. Noncontributory makes only one policy responsible for covering a loss.

Another term that contributes to the confusion is Waive of Subrogation because it seems very similar. Waiver of subrogation requires an insurance company to forfeit its right to sue another insurer for a full or partial payment made on a claim involving multiple parties. Working together, primary and noncontributory language protects an Additional Insured’s policy from contributing toward payment during a claim, while a waiver of subrogation prevents reimbursement after a claim payout. 

Okay, time to put it all together. Contracts required by upper-tier general contractors or property owners, for lower-tier entities such as subcontractors, should require Additional Insured status on a primary and noncontributory basis. Adding this contract clause provides the general contractor with coverage under the subcontractor’s policy. This prevents the contractor from needing to use its own liability policy in the event of a claim it did not directly or fully cause. The contractor’s loss history stays intact, and it avoids out-of-pocket costs.

Let’s Look at a Real Word Example:

Bob the Builder hires Peter Piper Plumbing as a subcontractor for its construction project. A building inspector slips on a slick floor caused by flooding from a cracked pipe. He sues both Bob the Builder and Peter Piper Plumbing for his personal injuries.

Who is responsible for paying the claim? To decide, we need answers to two questions:

• Is Bob the Builder an additional insured on Peter Piper Plumbing policy?

If Bob the Builder is not an additional insured, the company and Peter Piper Plumbing likely both will be held proportionally responsible for paying the claim. If an additional insured endorsement exists, Very Good will seek coverage solely under the subcontractor’s policy.

• Is Bob the Builder an additional insured on a primary and noncontributory basis?

The inclusion of the noncontributory term is important here. Without it, policies for both Peter Piper Plumbing and Bob the Builder may apply should a claim exceed coverage limits. For example, the building inspector sues for $125,000, but Peter Piper Plumbing has a policy limit of $100,000. The subcontractor would pay up to its coverage threshold as primary and Bob the Builder would have to pay the remaining portion. With noncontributory, Peter Piper Plumbing would need to trigger an umbrella policy if they have one, or pay the $25,000 out of pocket because it cannot seek assistance from the policy for Bob the Builder.

The Bottom Line

Primary and noncontributory endorsements are an important and often essential way for Contractors to create order and additional protections around an insurance policy. Not all insurance policies offer Primary or Noncontributory Endorsements and not all policies offer a Waiver of Subrogation. Be sure to check with your insurance broker. Especially if you plan on working alongside other trades on the same project.

• If you have questions about Primary & Noncontributory Endorsements or General Insurance Questions, we are here to help!
• Contact Kevin at: 530.320.3617 or [email protected]