• Primary And Noncontributory Insurance Meaning

Note: This article was revised on November 10, 2017 to clarify that the new ISO umbrella and excess endorsements extend coverage on a noncontributory, but not primary, basis. (Thanks to Larry Hunt of the Hunt Insurance Group for pointing out the misleading implication in the original article.)Although I’m no longer a staff member of the Big “I”, I continue as a volunteer faculty member of the Virtual University. About three weeks ago, an agency member submitted a question about primary and noncontributory coverage on umbrella policies. It was his impression that you could not add AI status on a primary and noncontributory basis to umbrella and excess policies, but an underwriter told him that, if such status is provided on the underlying policies, it extends to umbrella/excess policies. His concern was that the underwriter had told him things in the past that later were determined to be incorrect.On this question, how an umbrella or excess policy responds depends on the language in the form in question. Never assume or generalize.

While umbrella and excess policies often extend AI status, whether such status is extended on a primary and/or noncontributory basis may depend on the policy language or statutory or case law dealing with issues such as horizontal vs. Vertical exhaustion of limits.That being said, in 2016 ISO introduced noncontributory endorsements for both their umbrella and excess policies (and a primary and noncontributory endorsement their BAP):. CA 04 49 11 16 – Primary And Noncontributory – Other Insurance Condition. CU 24 78 11 16 – Noncontributory – Other Insurance Condition. CX 24 33 11 16 – Noncontributory – Other Insurance ConditionThese changes were introduced at the request of the Big “I” Technical Affairs Committee and/or the Big “I” Mid-American Insurance Conference in an attempt to address the vertical vs. Horizontal exhaustion requirement in an increasing number of construction contracts.

ISO has already done this in 2013 for the CGL program with their new CG 20 01 endorsement. In the case of umbrella and excess policies, since by accepted definition they are excess over any other primary coverage, the new endorsements are noncontributory but not primary to the primary policies of an AI.So, absent any overriding extra-contractual law to the contrary, these endorsements can now be used by ISO subscribing carriers to comply with contract requirements to provide noncontributory coverage on CUP/excess policies. For a more detailed explanation of the differences between “primary” status and “noncontributory” status, check out IRMI’s excellent article from liability expert Craig Stanovich:““Photo by Carlo Mirante.

I don’t think even these endorsement are a guarantee that the AI has primary and noncontributory coverage under the insured’s policy, especially the auto policy. When you have two or more policies, each with a primary/excess/pro-rata/equal shares “Other Insurance” clause, the only way to know for sure which policy is primary and noncontributory for which party is to compare ALL of the policies. There is case law on this. In one case, the downstream policy said it was primary; however, the AI’s policy was non-ISO and said that it was also primary.

Primary And Noncontributory Insurance Meaning

So the court found that both carriers would share the claim.IF all of the forms are pure ISO language, then these endorsements serve some value in that they reflect the downstream carrier’s express intention to provide primary and noncontributory coverage to the AI and hopefully the carrier would honor that commitment and not challenge it in court. I should blog about “following form” umbrella and excess policies. My experience has been that a true “following form” policy does not exist. Umbrellas usually provide broader coverage than the underlying policies.

Excess forms usually provide similar coverage to the underlying policies. But all of the ones I’ve seen have something that is lesser coverage. For example, you’re usually not going to see broader peril coverage or higher limits for fire damage legal liability than that provided by the CGL policy. You’re also quite likely going to see no or lesser limits for UM coverage. That’s why it’s so important not to make blanket statements on certificates of insurance or related documents that “following form” coverage is provided. It’s an undefined term and you can be assured that the recipient’s interpretation is going to be as broad as possible. My ebook has gone live on Amazon and in 24 hours has become Amazon’s #1 New Release in the Quotational Reference book category.

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Q: Lately, we have received several requests asking for proof that the umbrella includes “primary and noncontributory” provisions.Some additional insureds are now saying that even if the umbrella is considered to follow form, it does not include those provisions because they are an endorsement to, not part of, the underlying coverage form.That makes sense to me. Is it correct? Would an actual Primary and Noncontributory endorsement need to be added to the umbrella policy to comply with this requirement?Response 1: Normally, liability insurance flows horizontally before it goes vertically. By that, I mean the primary general liability insurance pays before excess—see also “other insurance” language.So, if you’re the additional insured on ABC’s GL policy and there is a claim, ABC’s GL policy pays. But before it goes to ABC’s umbrella to protect you, your own primary GL responds. Once that’s exhausted, ABC’s umbrella will respond.Key word here: “normally.” A few carriers now have umbrella endorsements that grant additional insured primary coverage, so the additional insured would not have to use their own GL.Response 2: There is no such endorsement. Umbrella policies are never primary—they’re excess over either underlying or a retained limit.Response 3: The policy has an “other insurance” condition, which you’d have to read to determine how it responds.

If you want it to respond differently, yes, the policy would have to be endorsed.Response 4: ISO has a noncontributory endorsement for this, though I don’t think it really does what it was designed to do. This issue comes up most frequently when someone uses a commercial general liability policy and an umbrella to meet minimum liability limit requirements.Say the insured has a $1-million CGL and a job that requires $2 million. They could up their CGL limit, or they could buy a $1-million excess policy that sits over both the CGL and the business auto policy.

Or maybe both CGL and auto requirements are higher, warranting an umbrella than an increase in underlying limits.The issue is horizontal versus vertical exhaustion of limits. What’s the order of payment: insured’s CGL, then additional insured’s CGL, then insured’s excess, then additional insured’s excess? Or does it go insured’s CGL, then insured’s excess, then additional insured’s CGL, then additional insured’s excess?

Needless to say, the additional insured wants the latter.Response 5: A few umbrella and excess liability insurers have built “primary and noncontributory” language into their forms, but the majority have not. In the case of the latter, yes—you need a Primary and Noncontributory endorsement.Response 6: Yes, you need to have an endorsement added to the umbrella policy which includes the “primary and noncontributory” language.Response 8: By definition, I don’t believe an umbrella policy can be primary. It can be noncontributory if the proper endorsement is attached.Response 9: The umbrella will not be primary and noncontributory. The question is, will the additional insured status provided by the umbrella be primary and noncontributory?Response 10: It depends on the umbrella policy language. Typically, the umbrella requires a special endorsement to be primary and noncontributory, with the coverage carried by the additional insured named on the CGL with primary and noncontributory coverage.This question was originally submitted by an agent through the.

Answers to other coverage questions are available on the. If you need help accessing the website,.