Contractors Insurance – do you have it covered?

Hiring a contractor or sub-contractor is often appealing to time-poor, cash-strapped small-business owners. One reason is they take care of their own insurance (as opposed to the business owner having to provide Contractors Insurance coverage for them, as is the case with employees). But what if things aren’t quite that straightforward?

Is your insurance policy covering the subcontractors you use in your business? The answer is NO!

Insurers do not include subcontractors under liability-insurance policies. If they did, the insurer then accepts the liability for all subcontractor’s work. The subcontractor could potentially cause an incident which results in property damage or an injury to a member of the public, and the subsequent insurance claim would be held against you, because they are an insured party under your policy.

Imagine the following scenario: You subcontract a tree lopper to cut down a tree and he damages the roof of the house in the process. What was a $1000 job results in $100,000 in damage. It will then be for the insurer to decide whether the policy will respond to this incident or deny liability. It may leave you responsible to pay costs for damages for work of you knew nothing about – costs which could be in the tens of thousands of dollars or higher, depending on the incident.

Better safe than sorry

It’s crucial for small businesses to ensure all their contractors and sub-contractors have appropriate contractors’ insurance in place.

But what policy?

That depends on the job. But a humble suburban tradesman will often have public and products liability, professional indemnity and workers’ compensation insurance. Err on the side of caution when checking any contractors or sub-contractors you use show you all the relevant policies to provide proof, so you are unlikely to be left on the hook if they, or one of their team, starts a fire or falls over and breaks a leg.

The best way to ensure a subcontractor has their own cover in place is to obtain a Certificate of Currency from them. A Certificate of Currency will provide the information on their policy and can give reassurance they have cover and you may not have significant out-of-pocket expenses.

Vicarious Liability

Your liability policy should also include an extension for Vicarious Liability.

Vicarious Liabilities can arise in situations where you are responsible for a third party (eg. the subcontractor or contractor who is working for you), and they are negligent in carrying out that responsibility and exercising control. If they are negligent, you may be deemed to be responsible for some of the property damage or bodily injury caused by the subcontractor or contractor. Vicarious Liability covers this exposure, so it’s important to check your policy includes this extension so you are not left out of pocket or with a damaged reputation.

Key points

Some key points to remember when dealing with subcontractors:
• Ensure all contractors are aware of their responsibilities and understand house rules;
• Ensure records are kept up to date detailing contractors’ attendance at principal’s induction program;
• Confirm all subcontractors or contractors have their own adequate insurance cover in place that provides indemnity for you by naming you as their contract principal;
• Check the cover a subcontractor has in place includes sums insured that match your insurance cover, and has no clauses that will pass the liability on to you, or exclusions that relate to the work you are performing; and
• Obtain and keep on file a copy of each subcontractor’s Certificate of Currency and diarise to ensure an updated certificate is obtained each year or for when new work is performed.

Important note: Fitzpatrick & Co has specialised in the horticulture and arboriculture industry for over 30 years providing assistance and financial support to companies, associations and events. Fitzpatrick & Co is there when your industry needs you. This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives,
financial situation or needs. For more information or questions on subcontractors’ cover or your own policy, please contact Fitzpatrick & Co. Insurance Brokers on 03 8544 1636, email: or visit the website at

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