Most construction work these days is completed via the use of sub-contractors. One reason for this is that it is not economical to have permanent staff and so workers are brought in on a temporary basis when required for a job. It could also be specific specialism is required and so a specialist contractor would be brought in. The main question to ask is, would a standard liability policy pick this up? The simple answer is no. When considering the use of sub-contractors, you also need to consider what type of contractors they are; bona fide or labour only. If you don’t correctly disclose them to your insurer you could end up having to pay a much larger premium or worse still, find yourself not covered for a claim.
It is important at the onset to work out and disclose what type of contractor you are using.
A labour only sub-contractor is classed as an employee by insurers because they don’t provide their own tools or materials, work under the direction of the main contractor and don’t carry their own insurance. Insurers include labour only sub-contractors under the Employer’s Liability and Public liability sections and charge the same premium as an employee.
Alternatively, a bona fide sub-contractor normally works under their own direction, brings their own tools and materials and more importantly carries their own insurance. Due to this, insurers do not class them as employees and provide cover under the Public Liability section only. Insurers charge a lower premium for the work carried out by the bona fide sub-contractors on the understanding that any claim caused by the sub-contractor would be passed back to them.
Consequently most liability policies include a condition that any bona fide sub-contractor must carry the same insurance cover as the main contractor. If their insurance does not meet this condition then you may be responsible for any gap in cover and insurers may not pick it up.
In order to comply with a sub-contractor condition you not only have to check that a policy is in force but that it is also adequate for the type of work that is taking place.
There are a number of common problems related to this including:
- The sub-contractor is undertaking an activity not disclosed to their insurer
- Their insurance policy excludes specific high-risk environments
- Their limits of indemnity are too low
- Claims cost exclusions or limitations may apply – e.g. when working at depth
- Their policy has lapsed
- They have breached policy conditions resulting in no cover (such as work at height or depth which fall outside policy wording thresholds or failure to comply with specific methods of work such as ‘hot work’ conditions).
Should any of these issues affect you or you are looking for help or advice when using sub-contractors and the covers required, contact ProAktive on 01302 341 344 or 0114 243 9914.
By Peter Ryder – Account Executive ACII, Chartered Insurance Broker