Contingent on the business, a primary and noncontributory endorsement can be an important part of an insurance policy. Credible businesses who understand the value of proper insurance coverage may want to require the parties they do business with to have insurance that includes them as an additional insured on a primary and non-contributory basis.
In order to truly recognize the importance of the primary and noncontributory endorsement, we must break down and analyze the terms "primary" and "noncontributory" separately.
When an insurance policy is considered “primary” it will pay out first in the event of a loss. If there are two policies covering the same risk, the policy deemed “primary” will pay out its limit before the secondary policy and is responsible for the defense costs until liability is determined. This is important because if there is a claim, you want to the other party’s insurance to pay out first if there is a loss as well as pick up the defense costs.
When and insurance policy is considered “noncontributory” the insurance carrier issuing the policy will not seek contribution from an additional insured if it pays out a loss.
For example, ABC general contractor needs some help constructing a building and hires XYZ subcontractor. XYZ names ABC as an additional insured on a primary and non-contributory basis. If a claim arises and XYZ’s insurance company pays out, the noncontributory endorsement prevents them from seeking contribution for the loss from ABC.
This is important because if the other party’s insurance pays out a claim, you don’t want their insurance carrier coming after you after claiming you were partially at fault and should responsible for contributing to the loss.
Primary & Noncontributory Endorsement (CG 20 01):
If you are named as an additional insured on a policy containing a "primary and noncontributory" endorsement, that policy will generally pay out first, cover the defense costs associated with the claim and be estopped from seeking contribution from you. This endorsement is ideal for general contractors because it helps transfer the risk associated from the negligence of one of its subcontractors.
To learn more about primary & contributory coverage or proper risk transfer in general, contact us to set up a review of your insurance.
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