What is Primary Non Contributory and why is it important?
Primary and Non-Contributory is an insurance provision often required in contracts, especially in industries like construction where multiple parties work on a single project. When a contractor’s insurance policy is designated as primary and non-contributory, it means that their policy will respond first in the event of a claim, without requiring any contribution from other parties' insurance policies.
Breaking Down "Primary" and "Non-Contributory"
Primary:
When an insurance policy is primary, it means that it will respond to a claim before any other policies. In the trades, a contractor’s primary insurance will cover claims arising from their work, and it won’t rely on other policies (such as those of a general contractor or client) to contribute to the payout.
Non-Contributory:
Non-contributory means that the designated insurance policy will pay for the entire claim up to its limits without seeking contribution from any other insurance policies held by other project participants. This prevents the contractor's insurer from trying to spread the risk and cost of a claim by seeking additional payments from other parties' insurers.
Why Primary and Non-Contributory Status is Important
Clarifies Responsibility for Claims:
Specifying a policy as primary and non-contributory establishes that the contractor’s insurance will cover the claim first and fully, eliminating confusion about which party’s insurer is responsible. This is especially important in complex projects where multiple insurance policies might apply.
Reduces Potential for Disputes:
If a claim arises, a primary and non-contributory endorsement helps prevent disputes between insurers about who should pay. It provides clear guidance that the contractor’s policy is responsible for covering the loss, which speeds up the claims process and reduces legal wrangling between parties.
Protects the Additional Insured:
Primary and non-contributory provisions are often requested by clients or general contractors who want protection as additional insureds. This designation ensures that they won’t need to rely on their own insurance if a claim is filed; instead, the contractor’s policy will respond first, offering the additional insureds peace of mind.
Meets Contractual Obligations:
Many construction contracts require contractors to have primary and non-contributory language in their insurance policies. This is especially true for larger projects, where owners or general contractors seek to reduce their own risk exposure. By meeting this requirement, contractors are more competitive and eligible for projects with these stipulations.
Example of Primary and Non-Contributory in Practice
Consider a situation where a subcontractor accidentally damages property while working on a construction site. If the subcontractor’s insurance is primary and non-contributory, their policy will cover the damage without involving the property owner’s or general contractor’s insurance, even if the property owner’s insurer also provides coverage. This setup keeps the responsibility squarely on the subcontractor’s policy, honoring the contract terms and protecting the client’s insurance from bearing any costs.
Important Considerations
Additional Cost:
Adding a primary and non-contributory endorsement can increase the cost of a policy, as it puts the onus on the contractor’s insurance. Contractors should weigh these costs, particularly if they work with clients who don’t require this provision.
Coordination with Additional Insured Endorsements:
Primary and non-contributory language is often included alongside additional insured endorsements. Together, they protect the additional insureds from having to rely on or contribute to claims for which the contractor’s insurance is responsible.
Review Contract Language:
Contractors should review contracts carefully to understand the specific primary and non-contributory requirements. Different contracts may have unique stipulations, and it’s essential to ensure that the policy language matches the contract’s expectations.
In short, Primary and Non-Contributory status is an essential risk management tool in the trades. It clarifies which insurance policy is responsible for covering claims, protects clients and other stakeholders, and meets contractual requirements, making it a key part of professional and compliant project management in construction.