Breaking Down “Primary & Non-Contributory Language”

A client, vendor, or general contractor has required you to provide proof of insurance. Alongside this invaluable documentation, they may have asked you to include something called “primary and non-contributory language.” What does that mean?  

In layman’s terms, having primary and non-contributory language on your proof of insurance documents requires that the policy must pay in advance of other relevant policies (the primary) and not require any contribution from additional policies which may claim to be primary (non-contributory). It gets a bit more complicated than that. 

Let’s dig in!

Examples of Primary and Non-Contributory Language Requirements 

Say you’re a contractor. A client – commercial, residential, government – is asking you for proof of insurance in addition to requesting that you use primary and non-contributory language. You may acquire a primary and non-contributory endorsement (also referred to as “PNC”) which provides additional rights to the third party that is being labeled the “additional insured” on your policy. 

These endorsements apply to ordinary commercial insurance policies, such as CGL, commercial vehicle, and worker’s compensation. If multiple policies have been triggered by a singular event, this endorsement – PNC – is designed to determine in what order they apply. 

Primary 

The primary in PNC language is the designation or priority that a specific person’s policy will trigger and respond to a claim first before another entity’s policy may apply. 

If you are the one being asked to provide PNC language as part of your insurance agreement, your client is asking your insurance provider to be the primary. 

Non-Contributory 

The non-contributory prevents the “primary” from seeking contributions from other entities’ policies to pay a claim. This ensures that only one policy is designated to cover a loss. 

If a claim was made that alleged both you and your client were liable, without PNC language the third party could recoup damages from both your insurance company and your client’s insurance company. With PNC language, your insurance company cannot seek contribution from your client’s insurance carrier. This means that your insurance company will handle the entire claim, as well as any potential insurance premium increases afterward. 

Additional Insured 

The additional insured is the entity or individual who benefits from another policyholder’s insurance protection – under specific circumstances.  

Most commonly, PNC endorsements are used in commercial general liability insurance. This is common practice among general contractors, property owners, subcontractors, landlords, and tenants. Worker’s compensation and commercial vehicle insurance policies also use PNC language. 

Waiver of Subrogation vs Primary and Non-Contributory Endorsement 

The insurance world is full of nuances, so it’s not a surprise that another endorsement – known as a waiver of subrogation – is often mistaken for a PNC endorsement. Waiver of subrogation functions differently. It basically requires an insurance company to forgo its right to sue another carrier for a part of the claim payout or the full amount where multiple parties are involved.  

On the other hand, PNC language protects the additional insured’s policy from being required to contribute to a claim payout. A waiver of subrogation inhibits any reimbursement following a claim payout. These policies can work hand-in-hand, but they are not the same thing. 

Conclusion 

A PNC language endorsement is great to straighten out the order of insurance policies and how they apply. It helps to avoid any confusion or conflict in case an event does occur. Having a primary and non-contributory language endorsement can place the responsibility on yourself and your personal insurance carrier. In turn, this could attract potential clients and broaden your existing protection. 

Note that the language of insurance policies can be risky. They can also be confusing, especially when they involve additional parties, like vendors, contractors, and subcontractors. A PNC endorsement is a great way to straighten out which party is required to respond in the event of a claim when numerous parties are included as additional insured.  

Requesting certificates of insurance and certifying that you have the right language, endorsements, and all your gaps covered can be difficult to organize. Insurance is rarely straightforward, and you’re busy enough with running your own business. Our insurance professionals at Hitchings Insurance Agency are ready to help in reviewing your existing commercial insurance. Reach out in the most convenient way for you: call/text 419-423-9145, email info@hitchingsinsurance.com or click on the image below to provide some initial information.

In the meantime, as we review your information, read our blog that reviews errors and omissions insurance for contractors.