Understanding Primary And Non-Contributory Liability Insurance
Understanding Primary And Non-Contributory Liability Insurance. Many business contracts require one party to provide the other with primary, non-contributory liability insurance. This is something that small business owners often encounter in their commercial property leases, construction agreements, and other contracts. Following is one common scenario:
Mary owns a popular beauty spa and salon called Sassy Salon & Spa. Mary leases an office suite from Commercial Properties Inc where she conducts her business operations. Commercial Properties Inc is the owner of the building. Mary's current lease for her office space will expire within 60 days and she's in the process of reviewing the new lease that her landlord has sent her to sign.
Much like her existing lease, Mary's new contract includes an indemnity agreement along with a requirement for coverage. According to the indemnity agreement, Sassy Salon & Spa assumes liability for all claims made against Commercial Properties Inc that are the result of negligence on its part. According to this provision, Sassy Salon & Spa must bind and maintain a general liability policy that provides contractual liability insurance.
This plan must include Commercial Properties Inc as an additional insured. This way, Commercial Properties Inc will be duly protected against all claims submitted by third-parties that are the result of Mary's use of the rented suite. According to this agreement, the coverage that Mary binds will need to be both primary and non-contributory.
Understanding primary and non-contributory liability insurance. Mary is confused. According to her current and soon-to-expire contract, her liability coverage isn't required to be primary and non-contributory. What might this change mean?
Understanding primary and non-contributory liability insurance. This means a policy must pay before other policies and without seeking contribution from other policies that also claim to be primary.
Liability Insurance Is Primary
Understanding primary and non-contributory liability insurance. Nearly every liability insurance policy provides primary coverage or first-line protection whenever a covered suit or claim arises. Although liability policies are almost always primary, they can provide additional protection for various types of claims. These claims are often better covered by other forms of insurance that an individual or business might have. For instance, liability policies can protect the insured tenant against fire damage claims for leased premises.
If you cause an accidental fire in the building that you're leasing for business purposes, your landlord could sue you for the resulting damage, but your own liability policy will cover this claim. If, however, you've opted to secure fire insurance on behalf of the building owner or landlord, this fire insurance will be applied first. In this instance, your liability coverage will be perceived as secondary coverage and will only pay for damages that aren't covered by the applicable, primary plan.
Liability Insurance That's Primary and Non-Contributory
Understanding primary and non-contributory liability insurance. For Mary, Commercial Properties Inc wants primary coverage under the liability policy for Sassy Salon & Spa, despite the fact that the current policy is already primary. What's the reason for this? Commercial Properties Inc is exhibiting concern for the limits of its own liability insurance.
Like all responsible building owners, Commercial Properties Inc has invested in liability insurance for protecting against claims of negligence that it might be responsible for as a business owner. This company doesn't want to exhaust the limits of its own liability insurance by paying for damages caused by negligence on the part of Sassy Salon & Spa. It wants to know for certain that the spa's own liability coverage will cover all claims arising from Sassy Salon & Spa's negligence. Moreover, Commercial Properties Inc wants to make it sure that it's own liability coverage will not have to pay for any portion of these damages.
Ultimately, primary and non-contributory language serves to protect the interests of Commercial Properties Inc and its liability insurance. With this coverage, Sassy Salon & Spa and it's liability policy will cover all damages resulting from Sassy Salon & Spa's negligence. Despite being primary, a standard liability policy will not use the term non-contributory. As such, if a contract demands primary and non-contributory liability, business owners must have a special endorsement added to their plans.
Primary and Non-Contributory Endorsement
Understanding primary and non-contributory liability insurance. There are two essential purposes that the primary and non-contributory endorsement serves. To start, it ensures that the additional insured is given primary liability coverage. This means that if claims that are protected under the additional insured endorsement occur, the insurer will not wait for the additional insured's coverage to remit monies before covering the loss. Finally, this endorsement also confirms that the insurer will not seek any monetary compensation under the additional insured's coverage.
How Primary and Non-Contributory Works
This example shows how the additional insured is protected by a primary and non-contributory endorsement:
Lola is a patron of Sassy Salon & Spa. On one of her visits, Lola trips and falls by the front door of the establishment, due to a loose piece of carpeting. Lola suffers a broken ankle as the result and sues both Sassy Salon & Spa and Commercial Properties Inc for her bodily injury. According to LuAnn's suit, both of these parties displayed negligence. Lola alleges that Sassy Salon & Spa has long been aware of the loose flooring, but has not taken actions to remedy the problem. Moreover, the suit also claims that carpet maintenance was ultimately the responsibility of Commercial Properties Inc.
Under Sassy Salon & Spa's liability policy, Commercial Properties Inc is listed in an attached endorsement as the additional insured. This endorsement covers liability for Commercial Properties Inc for the ownership of the building area that's been leased to Sassy Salon & Spa, as well as for the maintenance of this area. Sassy Salon & Spa's liability coverage also includes a primary and non-contributory endorsement.
After Mary submits the suit to her insurer, this is ultimately settled for $44,000. $22,000 is paid by the insurer on behalf of Sassy Salon & Spa, and $22,000 is paid by this same insurance company on behalf of Commercial Properties Inc. More importantly, after having paid these monies out, Mary's insurer cannot attempt to recoup its monies from either Commercial Properties Inc or the insurance company that Commercial Properties Inc works with. As per the endorsement, Mary's insurance has agreed to not seek contributions from any insurance that Commercial Properties Inc has bound.
The Bottom Line On Waiver Of Subrogation
A primary and non-contributory endorsement may help certain businesses avoid having a claim made on their policy.
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Get useful tips and information about how much commercial insurance costs, small business risks and exposures, how insurance regulations effect your businesses' and detailed descriptions of coverages and exclusions and more. Most small businesses need to buy the following four types of insurance at a minimum to cover their operations from every day risks:
Property Insurance: This policy covers a business if the property used in the business is damaged or stolen as the result of common perils like fire or theft. Commercial property insurance covers the buildings, structures and also business personal property - which includes furniture, inventory, raw materials, machinery, computers and other items.
Liability Insurance: Any company can be sued. Slip-and fall lawsuits are very common and be costly. Customers can claim you injured them or damaged their property - and lawsuits are very expensive. Commercial liability insurance pays damages and can include attorney's fees and other legal expenses. It also ca pay for the medical bills of injured third parties
Commercial Auto Insurance: For vehicles owned by the business. Commercial auto insurance pays bodily injury or property damage costs for which the business is found liable - up the the policy limits for liability and property damage.
Workers Compensation Insurance: In almost every state employers must provide workers comp when there are W2 employees. Workers compensation pays for the medical care of employees and can replace a portion of lost wages - regardless of who was at fault for the injuries.