When a business client requires you to name them as “additional insured” on your general liability insurance policy, you may have encountered a confusing term… Primary and non-contributory1
But what does “primary and non-contributory” (aka “PNC”) actually mean for your company?
The term PNC is one of many insurance terms, such as “waiver of subrogation“, “hammer clause“, “coinsurance” and “action over” that can be difficult to understand.
As you will read below, adding primary and non-contributory language for an additional insured on a certificate of insurance (aka “COI”) means that you are engaging in a form of contractual risk transfer and providing broader protections to another party (your client) in the event of a liability claim.
What Does Primary and Non-Contributory Mean?
Primary refers to the priority of coverage (or which party’s insurance will be triggered first) in the event of a claim.
In the case of a client requiring you to include primary and non-contributory language as part of an additional insured agreement, your client is requiring your insurance to be primary in the event of a claim.
In an insurance context, the word contributory invokes the concept of proportionate share of the obligation to pay for a loss.
When two or more insureds provide insurance coverage for the same party and claim, the contribution will default to equal amounts in terms of the share allocated to each insured, or by their limits of insurance. Each insured has the right to seek contribution from the other insured proportion to their share of the total loss.
However, non-contributory means that, in the event of a claim, your insurance will not seek contribution from your client’s insurance.
For instance, if there was a claim and both you and your client were liable, then the injured party would have the right to recover damages from both you and your client’s insurance. In other words, both your insurance and your clients insurance would contribute to paying the claim.
However, in the same claim situation, if your client has been named as an additional insured with primary and non-contributory language in place, your insurance company will not seek contribution from your client’s insurance policy.
In this case, your client’s insurance policy will only be triggered in the event that your insurance is exhausted. In other words, your insurance policy is primary (first in line) and your client’s insurance policy is excess (second in line).
Adding primary and non-contributory language to an additional insured endorsement broadens the protections for your client by making your insurance first in line in the event of a claim.
In some cases, your insurance company may charge you an additional fee to add primary and non-contributory language to your policy, whereas in some cases they will not.
The best way to keep track of certificates of insurance and manage any requests for primary and non-contributory language for additional insureds on your general liability policy is to work with an insurance broker who understands your business.