As a compliance manager, it’s no secret that you have a lot to keep in order. The process of collecting and tracking the Certificate of Insurance (COI) is a big job. Plus, the legal jargon on each endorsement can be downright confusing. An insurance term that might have you scratching your head is “primary and noncontributory.” We’ll define this common insurance endorsement and help you understand why it’s important to protect your organization from claims and losses.
definition of primary and non-contributory guarantees
We will start with the basic concepts of the terms. Primary and non-contributory endorsements apply to insurance policies such as commercial general liability (cgl), automobile civil liability, worker’s compensation and others. When multiple policies are activated for the same event, the endorsement specifies the order in which they apply.
- primary designates that one party’s liability policy is responsible for first responding to a claim before another party’s policy applies.
- non-contributory prevents the primary party’s insurer from seeking contribution from the other entity’s policy to pay a claim. Non-contributory makes only one policy responsible for covering a loss.
- Are very good builders an additional insured in the punctual plumbers policy?
- Are very good builders an additional non-contributory primary insured?
Another term that adds to the confusion is “surrogacy waiver” because it seems so similar. The subrogation waiver requires an insurance company to waive its right to sue another insurer for full or partial payment of a claim involving multiple parties. Working together, primary and non-contributory language protects an additional insured’s policy from contributing to payment during a claim, while a subrogation waiver prevents reimbursement after payment of a claim.
okay, time to put it all together. contracts required by higher-tier businesses, such as general contractors or owners, for lower-tier entities, such as subcontractors, should require additional insured status on a primary, non-contributory basis.” both the top and bottom tier probably have cgl policies. the addition of this clause to the contract provides the general contractor with coverage under the subcontractor’s policy. This prevents the contractor from needing to use their own liability policy in the event of a loss that they did not directly or wholly cause. the contractor’s loss history is kept intact and out-of-pocket costs are avoided.
putting primary and non-contributory into practice
Let’s consider the following scenario:
very good builders hires occasional plumbers as a subcontractor for their construction project. A building inspector slips on a slippery floor caused by a flood from a broken pipe. He sues both very good builders and punctual plumbers for their personal injuries.
Who is responsible for paying the claim? To decide, we need answers to two questions:
if very good is not an additional insured, the company and the individual plumbers will probably be proportionally responsible for paying the claim. if there is an additional insured endorsement, very good will seek coverage only under the subcontractor’s policy.
The inclusion of the non-contributory term is important here. Without it, policies for both punctual and very good plumbers can apply in the event that a claim exceeds coverage limits. for example, the building inspector demands $125,000, but punctual plumbers has a policy limit of $100,000. the subcontractor would pay up to his coverage threshold as primary and, very well, he would have to pay the remaining part. with punctual non-contributory plumbers you would have to activate an umbrella policy or pay the $25,000 out of pocket because you cannot seek help from the very good builders policy.
keep everything in order
Primary and non-contributory endorsements are a great way to create order and protection around your insurance policy. Understanding all the terms and phrases in the world of insurance is not easy. By learning one at a time and applying it, you can continually strengthen your loss prevention program.
if insurance jargon has you stressed out, consider a coi tracking service to help you stay organized and on top of your game. mycoi exists for a reason: to help you handle the daily tasks of managing certificates and protect your company against underinsured claims, costly litigation, and failed audits. the software operates according to the industry logic of safe with an easy to use. -use, automated process for communication and tracking of coi. even when you don’t understand all the insurance terminology, mycoi keeps you protected.
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