Have you got it covered?
Hiring a contractor or sub-contractor is often appealing to time-poor, cash-strapped small business owners. One big reason is that they take care of their own insurance (as opposed to the business owner having to provide 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 this, the insurer then accepts the liability for all of the work that the subcontractor undertakes.
“It’s crucial for small businesses to ensure all their contractors and sub-contractors have appropriate contractors insurance in place.”
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 hire a tree care worker (subcontractor) to cut a tree and he damages the roof of the house whilst removing the tree. What was a $1,000 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 the costs for damages for work of which you knew nothing about. Costs which could be in the tens of thousands of dollars or higher, depending on the incident.
What policy? Well, 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 that 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 you use has their own cover in place is to obtain a Certificate of Currency from them. A Certificate of Currency will provide you with the information that is on their policy and can give you re-assurance that they have cover and that you may not have significant out of pocket expenses.
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 for you, so it is important to check that your policy includes this extension so that you are not left out of pocket or with a damaged reputation.
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 that 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 that 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 that an updated certificate is obtained each year or for when new work is performed.