What does Primary and Noncontributory mean?

A common stipulation in a contract between a general contractor and a subcontractor is that the subcontractor names the general contractor as an “additional insured” on a “primary and noncontributory basis.” Although common, “primary and noncontributory” is a term that can cause confusion among general contractors and subcontractors alike. We are breaking it down for you below so you can understand what it means and why it’s important.

“Primary and Noncontributory” meaning

It’s important to understand that primary and noncontributory concerns additional insured coverage.

When it comes to a construction project claim, it is not unusual for a subcontractor and the general contractor to both be named in a suit. If found liable, each party’s general liability insurance policy would typically pay their respective cost of defense and settlement for their own insured.

However, when a subcontractor is required to name the GC as an additional insured on a “primary and noncontributory basis”, their insurance covers the GC in a claim (arising out of the subcontractor’s work) as if they were an insured on the sub’s policy. The “primary and noncontributory” wording means the subcontractor’s insurance must pay first (primary) without seeking the general contractor’s liability insurance to pay (noncontributory).

Why this endorsement is necessary

In a standard construction project, many subcontractors are hired to perform a piece of the whole construction job. If the general contractor and his or her insurance policy were involved in every claim, the GC’s assets could be exhausted in no time, often because the division between the claim payments is not made based upon fault.

What else you should know

Who pays for claims in excess of policy limits is often arbitrary. You are a subcontractor with a $1 million general liability insurance policy and a $5 million umbrella policy. A claim is made against you and a general contractor for $1.5 million. Depending on the situation, you may be liable for the entire amount with $1 million coming from your general liability policy and $500,000 from your umbrella policy, or you may be liable for only $1 million and your general contractor would be liable under his or her general liability policy for the remainder. The determination depends on the insurance companies, the court and/or the jurisdiction.

Also, no two policies are alike. Like any insurance policy (auto, home, liability, etc.), general liability policies vary in coverage and limits from company to company, insured to insured. We do not recommend buying a policy based on premium alone; forms and wording should be compared before signing on the dotted line. If you buy insurance solely on price, you may be saving yourself money in the short term, but with inadequate or incorrect insurance, you might end up paying dearly in the long run.

Understanding how to manage and mitigate risk can be a daunting task. Like you know construction, we know insurance. Let us put our knowledge to work for your advantage and build your insurance program right the first time.