“Primary and Noncontributory” In Contracts and Insurance
Most contracts, especially construction contracts, require one party to name the other as an additional insured on their policies. In many cases coverage as an additional insured is to be “primary and noncontributory” over the additional insured’s own insurance. This concept is complicated; insurance commentator Craig Stanovich took ten pages to explain it in IRMI’s “Expert Commentary” series. This article is an attempt to list the main points. (The full article is at https://www.irmi.com/articles/expert-commentary/primary-and-noncontributory. All quotes, except comments in parentheses, are Stanovich’s.)
When two insurance policies cover the same claim, one insurer has the right to require the other to contribute to its defense and settlement. This is an independent right of the insurer, unlike subrogation which is derived from the insured’s right to recover from a party causing a loss.
The typical “other insurance” clause in the Commercial General Liability policy states it is primary unless another policy (such as an additional insured’s) is also primary. “The introduction of the term noncontributory was…merely an inelegant attempt at having my (the named insured’s) insurance company agree that it would not seek its independent right of contribution against your (the additional insured’s) insurance company”.
Since 1997 the Insurance Services Office (ISO) has amended the other insurance clause making an additional insured’s policy excess insurance. Consequently, “…noncontributory has outlived its usefulness…”. Since 2013 a “Primary And Noncontributory – Other Insurance Condition” endorsement expressly states additional insured coverage is primary and noncontributory. Most insurers whether or not using ISO forms will cover additional insureds on this basis if required by written contract. In spite of these changes most contracts, including those using AIA documents, require primary and contributory wording in insurance policies.
The situation is more complicated when “primary and noncontributory” is required in Excess or Umbrella policies. “…a typical umbrella has no intention of responding before any primary policy available to any insured…” including an additional insured. Even if an excess or umbrella policy is “follow form” of underlying insurance, the “other insurance” clause is usually an exception and the additional insured’s CGL is primary unless otherwise stated. In arguing priority of coverage there are two positions: the named insured’s primary and umbrella respond before the additional insured’s policies (vertical exhaustion) or both CGL policies respond before the named insured’s umbrella (horizontal exhaustion). There is little case law and courts have found for both positions.
Primary and noncontributory requirements are controversial. Some insurance experts feel they are unnecessary if not harmful. They are a case of a solution to a problem that has already been solved. Until contract drafters recognize this, insureds and brokers will have to deal with this requirement and be sure proper coverage is in place.