What Is A Primary And Non-Contributory Wording Endorsement?

Have you – a business owner – ever had to get a Primary and Non-Contributory Wording endorsement on your general liability policy?  Have you – a business owner – ever wondered what Primary and Non-Contributory Wording actually means?

Primary and Non-Contributory Wording is one of the least understood insurance concepts in existence.  I know because I frequently talk to contract givers – those who require others to have the Primary and Non-Contributory Wording endorsements – and they often have no idea what they are, although they absolutely require them.

Before I explain what they are, here are a couple of things to know:

First, you will only need a Primary and Non-Contributory Wording endorsement from the entity that has also required you to add them as an Additional Insured on your policy.  (If you want to know what an Additional Insured endorsement is, check out my previous blog post here).

Second, insurance companies can charge you for them.  Pricing can be around $100 per year per Primary and Non-Contributory Wording endorsement.  But sometimes, if you’re lucky, they’re free.

So, what is this Primary and Non-Contributory Wording thing?

It is an endorsement that makes your insurance policy the first one to pay and prohibits your insurance policy from seeking contribution from another insurance policy.

That begs the question: what is contribution?  It is simply sharing in the payment of a claim.  Let’s say that you – a business owner – have a home based business selling gourmet artisan alcohol-infused marshmallows online.  (Yes, these really exist and they’re incredible – see here).  You have a business owner’s policy that covers your inventory.  And of course, you have a homeowners policy on your home.  One day while making s’mores (for a little R&D, of course), your bonfire gets out of control and burns your home to the ground, including your entire marshmallow inventory.  You file a claim on your business owner’s policy to recover the loss.  The claims adjuster is ready to pay for the loss, but just before writing the check, asks a curious question: “Do you have a homeowners policy?”  “Yes, of course,” you say.  “Thank you,” says the claims adjuster, as he and his calculator slither out the door.  Why did the claims adjuster ask this question?  Because he knows that homeowners policies often cover limited amounts of business personal property.  If this is true, then both policies have a duty to pay, and the business owners claims adjuster will see to it that both policies will their fair share.  That is contribution.

The Primary and Non-Contributory Wording endorsement is meant to prevent contribution from happening.  The Primary & Non-Contributory Wording endorsement says “this insurance will be the first one to pay (primary), and will not seek contribution from any other source (non-contributory).”

Lastly, the reason the Primary and Non-Contributory Wording endorsement accompanies an Additional Insured endorsement is because the entity that requires you to have them both knows that your insurance company knows that it has its own insurance.  And if your insurance company pays a claim on that entity’s behalf, that entity believes your insurance company is likely to seek contribution from that entity’s insurance, defeating the purpose of the additional insured endorsement.

And that is it.  Since 1997 there have been reasons to eliminate the Primary and Non-Contributory Wording endorsement altogether, but that is a different post for a different day.