Risk & Business Magazine Spectrum Insurance Spring 2017 | Page 25

“PRIMARY & NONCONTRIBUTORY” WORDING AND “WAIVER OF SUBROGATION”
Understanding “Primary & Noncontributory”
And “Waiver of Subrogation”
W
hen a business receives a
contract with insurance
information or a
request for a certificate
of insurance, it probably
seems like it is written in a different
language. The easiest thing to do is to send
it to the person that speaks that language:
your insurance broker.
Have you ever wondered what some of
those words on the request mean and why
you sometimes have to pay extra (up to
$1,000 or more) when a certificate request
passes your broker’s desk? We’re going
to examine two increasingly common
phrases, “primary & noncontributory”
wording and “waiver of subrogation,” to
find out more.
THE TERMS DEFINED
Despite the fact that these are two
separate phrases, there are actually three
definitions at work here, and combined,
they can take a toll on your insurance
coverage. So what do they mean?
“Primary & noncontributory” is a phrase
that usually appears in insurance
policies. The phrase refers to any type of
liability insurance (Commercial General
Liability, Automobile Liability, Workers’
Compensation, and the like). “Primary”
means that the insurance policy will be
the primary, or first, policy to pay out in
the event of a claim. “Noncontributory”
means the insurance policy will be the only
policy available to pay the claim. A policy
with this phrase will not require any other
policy contribute to payment of the claim.
To define the phrase “waiver of
subrogation,” you must first understand
the term “subrogation.” Subrogation is the
right of one party to substitute for another.
In the world of insurance, if a claim is paid
out by the insurance company, subrogation
allows for the insurance company to step
into the shoes of the insured and sue any
available third party for any relief available
to recoup payment made on the claim. A
waiver of subrogation waives the right of
the insurance company to do this before
work even starts.
HOW THESE TERMS AFFECT YOUR
POLICY
Both of these endorsements extend the
coverage of the policy to other entities
and keep the insurance company from
recovering funds available from any other
party to a claim. This can affect your
bottom line in the event of a claim.
Consider this scenario. A contractor was
contracted to repair a hospital after a car
had run through the wall of the building.
The contractor was working on the project
one afternoon when the hospital security
guard drove by. The security guard
drove up on the sidewalk near where the
contractor’s crew was working and lost
control of his vehicle, not only running
over the building materials being used
but also hitting one of the contractor’s
employees, breaking his leg.
The subcontractor had provided “primary
& noncontributory” and “waiver of
subrogation” to the hospital, so the
$40,000 employee injury claim for
workers compensation AND the claim for
damage to building materials were paid
by the subcontractor’s insurance with no
contribution by the hospital insurance
for damages and injuries caused by the
hospital employee.
pays out on your behalf, you are waiving
the right of the insurance company to try
to go after a third party who may also be
liable on the claim. In the above example,
even without “primary & noncontributory”
wording, the subcontractor has waived the
right of the insurance company to recover
anything from the contractor who may
have contributed to the claim.
WHAT YOU CAN DO
Some contractors ask for the moon
because they can get it. You sign a
contract because you want the work and
worry about the details later. However,
the best time to negotiate a contract is
before it is signed. If the insurance carrier
is unable to recover losses from another
contributing party, the entire claim falls
on your record and affects your future
insurance premiums and possibly even
your ability to secure reasonably priced
insurance.
Your first line of defense should be
to talk to your insurance broker and
a qualified contract attorney prior to
signing the contract. Review the terms of
the agreement and any work that needs
to be done to see if either endorsement
is necessary for the type of job you
will be doing. You may find that these
en dorsements may not be required. This
alleviates the burden on your insurance
carrier and the impact on your future
insurance premiums. +
“Primary & noncontributory” wording in a
certificate request changes the relationship
between the general contractor (GC)
and the subcontractor when it comes to
claims. The subcontractor’s insurance
becomes the primary insurance on that
part of the job. Even if the GC contributed
to an incident in some way, the insurance
company cannot require the GC’s
insurance to contribute to the claim.
“Waiver of subrogation” on the policy
acts in much the same way as the
noncontributory endorsement. If there
is a claim and the insurance company
BY: TIM BIRKHAUSER,
INSURANCE ADVISOR, PARTNER,
SPECTRUM INSURANCE GROUP
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