The primary and noncontributory clause is a common provision in insurance contracts, particularly in liability insurance policies. It defines how and to what extent different insurance policies should interact when there are multiple providers covering the same risk or claim.

When numerous parties are listed as additional insureds under a policy, determining the primary contributor to a claim and their degree of responsibility can be quite challenging. The primary and noncontributory clause is a means to clarify who is responsible for what in these elaborate scenarios.

Here are some good things to know, including how a primary and noncontributory clause differs from a waiver of subrogation — and more.

What is a Primary and Noncontributory Endorsement?

First, it's important to separate the three integral parts of the primary and noncontributory clause — sometimes called a primary and noncontributory endorsement — to understand them separately:

• Primary: This is the insurance policy that takes primary responsibility for covering a loss or claim. It pays out first when a covered loss occurs, up to its policy limits.
• Non-contributory: This means a policy will not seek contribution for a loss or claim from other policies also providing coverage unless the first insurance policy's limits are exhausted. In other words, only once the policy's obligations are reached can the remainder of the claim be shared among other parties.
• Additional insured: This is a third party who will be covered under the insurance policy in question.

A policy with a primary and noncontributory endorsement ensures that it takes precedence over other policies and provides the initial insurance coverage in the event of a claim. Only after the policy limits have been fully utilized will other insurance policies involved in the claim begin to contribute.

This clause can be particularly important for businesses or individuals who want to protect their interests by adding a layer of protection against liabilities and potential losses.

A good example of this is as follows: If a construction company is hired to work on a new building project by the property owner (PO), the PO may be required to be named as an additional insured on the contractor's liability insurance policy. Additionally, the PO may require that the contractor's liability policy contain a Primary and Non-contributory endorsement. This way, if a liability claim arises from the construction work in any way, the PO can seek coverage under the contractor's policy.

What is a Waiver of Subrogation Clause?

A waiver of subrogation is another term that is often confused with primary and noncontributory endorsements. Although the two are similar, they each serve a distinct purpose.

Simply put, a waiver of the subrogation clause is an arrangement where an insurance company agrees not to pursue recovery (subrogation) against a third party, even if that third party is responsible for the loss covered by the policy.

For example, if there's a property insurance policy with a waiver of subrogation clause and fire damages the property due to a faulty electrical system, the insurance company agrees not to pursue legal action against the general contractor who provided the electrical work to recover their payout.

Effectively, this type of clause can potentially limit an insurance company's ability to recover losses from third parties. That said, a waiver of subrogation can be beneficial to maintain positive relationships with vendors, contractors or other parties whose actions might result in a claim.

Unlike the primary and noncontributory clause, this type doesn't impact the order of payment among multiple insurance policies. Instead, it primarily addresses the issue of an insurer's right to seek reimbursement from a responsible third party.

Contact Lewis & Ellis Today

Insurance language can be tricky to understand, and businesses may not know the particular benefits and legal responsibilities they're held to when it comes to providing coverage.

To learn more about primary and noncontributory policies and other insurance language, contact Lewis & Ellis today.