Beth owns Body Beautiful, a popular beauty salon and spa. Beth operates her business out of an office suite she leases from Premier Properties, the building owner. Beth's current lease expires in sixty days and her landlord has sent her a new one to sign.

The new contract contains two provisions found in Beth's current lease: an indemnity agreement and a requirement to purchase insurance. The contract requires Body Beautiful to assume liability for claims against Premier Properties that result from the spa's negligence.


The contract also requires Body Beautiful to purchase a general liability policy that includes contractual liability coverage. The policy must cover Premier Properties as an additional insured for the types of claims described in the indemnity agreement.

The new lease contains a third provision that Beth doesn't recognize. It states that the liability insurance Beth provides must be primary and noncontributory. Beth is mystified. What does this mean?

Liability Coverage is Primary

Virtually all liability policies contain a clause stating that they provide primary coverage. That is, a liability policy affords first-line coverage in the event of a covered claim. However, there are some situations where the policy applies on an excess basis. An example is an auto liability claim that is covered by both a general liability and a commercial auto policy. Auto policies are designed to cover auto-related claims. Thus, the auto policy will apply first and the liability policy will apply on an excess basis.

Primary and Noncontributory

Why is Premier Properties demanding primary coverage under the spa's liability policy if the policy already is primary? Premier is concerned about its own liability coverage. Premier has purchased a liability policy to protect itself against claims stemming from negligence it commits in the course of its property ownership business. Premier doesn't want its policy limits used to pay claims that arise out of negligence committed by its tenant. If Premier is sued because of a negligent act committed by the spa, it wants the spa's liability policy to cover the claim. Moreover, Premier does not want its policy to contribute to the loss.

Premier has included the primary and noncontributory language in the contract to protect its own liability coverage. It wants to ensure that if a claim is filed against Premier that results from the spa's negligence:

• the claim will be paid by the spa's liability policy; and
• the spa's insurer won't seek contribution from Premier's liability insurer

Primary and NoncontributoryEndorsement

A typical liability policy does not use the word noncontributory. Thus, when a contract states that liability coverage must be primary and noncontributory, a Primary and Noncontributory endorsement must be added to the policy.

The endorsement serves two purposes. First, it ensures that the liability coverage provided to the additional insured is primary. That is, if a claim occurs that is covered by the additional insured endorsement, the insurer will pay the loss without waiting for any other insurance to pay.

Secondly, the endorsement confirms that the policyholder's insurer will not seek contribution from any other insurance available to the additional insured. In other words, the policyholder's insurer will not ask the additional insured's own insurer to pay part of a loss that is covered by the additional insured endorsement.

Example

Jane is a customer of Body Beautiful. One day Jane is about to enter the spa when she trips over a piece of loose carpeting outside the spa's front door. Jane falls and breaks her ankle. Jane later sues Body Beautiful and Premier Properties for bodily injury, alleging that both were negligent. The suit contends that spa staff members had been aware for months that the carpet was loose but had done nothing to protect customers. Premier Properties was also negligent. It was responsible under the lease for maintaining the carpet but it failed to do so.

Premier Properties is listed in an additional insured endorsement attached to Body Beautiful's liability policy. The endorsement covers Premier's liability for the ownership, maintenance or use of the portion of the building that Premier has leased to Body Beautiful. The spa's liability policy includes the primary and noncontributory endorsement.

Beth sends the lawsuit to her liability insurer. The suit is eventually settled for $20,000. The insurer pays $10,000 on behalf of the spa and $10,000 on behalf of Premier Properties. Once Beth's insurer has paid the settlement, it cannot attempt subrogation (seek recovery) from the landlord or its liability insurer. Beth's insurer has agreed via the endorsement that it will not seek contribution from any other insurance available to Premier Properties.