Carefully managing one insurance policy can be complicated enough, but there are many scenarios when multiple sources of coverage may protect you, your hired third parties, and/or companies you enter business relationships with.
In the event of a loss or a claim that could be covered by more than one insurance policy, the process for determining whose coverage responds first is done through primary and noncontributory endorsements. In this blog, we explore what you need to know about these major topics.
Read our Certificate of Insurance 101 series for more guidance on compliance and insurance best practices.
What Is a Primary Endorsement in Insurance?
An insurance policy with a primary endorsement means it will ultimately be the main source to cover a loss. In the event of a claim, the party with the primary endorsement will be responsible for responding first, before any other applicable insurance. Using primary endorsements can be beneficial in business because clearly defining which insurance policy is primary can help prevent disputes between insurance companies over the order of contribution.
What Does Primary and Noncontributory Insurance Mean?
Another important concept in insurance pertaining to primary endorsements is an endorsement that often goes along with it: noncontributory insurance endorsements.
Noncontributory here means that the primary insurance policy will not share a loss with any other insurance policies that the insured party may hold. It means that insurance will stand as the sole contributor to the covered loss, and other insurance policies are not expected to contribute. So, if a claim was made that alleged that held both you and your vendor liable without a primary and noncontributory endorsement form, the third party could recoup damages from both their insurance company and yours.
Primary and noncontributory clauses often show up in contractual agreements between parties wanting to allocate and clarify insurance responsibilities. Ultimately, they aim to prevent disputes between insurers and streamline the claims process by designating which party is considered primary and whether or not one insurer can seek contribution from another.
What Is Primary and Noncontributory Endorsement Wording on Certificates?
Primary and noncontributory endorsement wording can matter, and you should consider all of your business requirements and expectations before formalizing your statement. These endorsements, typically attached to a business certificate of insurance (COI) as evidence of the agreed-upon terms, will indicate which party’s insurance will be considered primary and noncontributory, meaning that they will be the first and sole contributor in the case of claims, not sharing the loss with any other insurance the certificate holder might have.
A primary and noncontributory endorsement might start off something like this: “The insurance provided by [Insurer’s Name] under Policy Number [Policy Number] is primary and noncontributory. This means that in the event of a covered loss, [Insurer’s Name] shall be the first and sole insurer responsible for the loss, and its coverage shall not be diminished or affected by any other insurance that the certificate holder may have, regardless of whether such other insurance is stated to be primary, contributing, excess, or otherwise. [Insurer’s Name] will not seek contribution from any other insurance or self-insurance maintained by the certificate holder.”
What Is an Example of a Primary and Noncontributory Clause?
Let’s walk through an example of a case where one would use a primary and noncontributory clause in the construction industry. A project owner might require a contractor to add them as a primary and noncontributory insured on the contractor’s liability insurance policy. Then, in the case of damages or any covered incident during the project, their interests would be protected as the contractor’s insurance would stand as the primary source of coverage.
To add these clauses to your policy, you’ll work with your insurance provider and utilize the primary and noncontributory endorsement forms. Once approved and finalized, it will be included in your COI. There are digital primary and noncontributory endorsement form examples for insurance policies that you can use to learn more, but remember to trust your insurance provider first and foremost when it comes to your policy.
What Is the First Requirement of the Primary and Noncontributory Clause?
In a primary and noncontributory clause or endorsement, the first requirement is to clarify which party is being designated as the primary one. The clause must explicitly state which party is considered primary and will be the first to respond in the event of a covered claim. In addition to that designation, the clause will also need to include the noncontributory element, which means that the designated primary insurance will not share contributions to the loss with any other sources of coverage.
How Can myCOI Help Me With My Third Party Insurance Certificates?
Struggling to manage certificates of insurance with primary and noncontributory clauses? Want your third parties’ policies to be the primary or sole contributors to covered claims but don’t know how to bring it up? myCOI is a team of industry experts here to help you with your compliance and COI management efforts. Book a free demo with us today to learn how we help our clients protect their companies and reduce their level of risk.