Do Subcontractors need their own Insurance?

It’s natural to assume that if you’re a subcontractor, you don’t need to worry about insurance because the main contractor will be sorting out that side of things. And in some cases, that does indeed happen.

However, even if the main contractor is sorting out the insurance for a project, that won’t cover all of the risks that a subcontractor faces. And the main contractor doesn’t always arrange the project’s insurance.

So, what are the insurance issues that subcontractors need to consider?

Contractual requirements

The contract is the first thing to inspect before you start working on a project. Usually, the contract will stipulate who is responsible for arranging insurance and what insurance for subcontractors is required.

The contract often stipulates that the subcontractor must be insured, and if so, it’ll say what insurance the subcontractor is required to have. If the subcontractor cannot prove that they have a valid policy of insurance in force, they won’t be allowed on site and won’t be able to work.

Generally, the main contractor will require the subcontractor to have public liability insurance and will specify the indemnity limit that policy needs to have. The indemnity limit is the maximum that the insurance will pay in the event of a claim.

The standard indemnity limit in a public liability insurance policy is usually £1,000,000. Often contracts will insist on higher limits. Many local authorities insist on a £10,000,000 indemnity limit and on some projects the contractual indemnity limit can be even higher.

If a higher indemnity limit is required, your existing insurer may be able to increase your public liability indemnity limit for an additional premium. If they’re unable to do this, you can buy an excess public liability insurance policy, either on a short-term basis to cover a specific project, or to cover you annually if you have multiple projects that require higher indemnity limits.

The main contractor may also stipulate that the subcontractor is required to cover the work in progress and any materials on site, particularly if the main contractor is a project manager rather than a contractor that is only using subcontractors for specialist tasks.

Protecting yourself

Even if the main contractor is insuring the project, they won’t be insuring all of the risks that a subcontractor faces.

Even if there is a master insurance policy covering the public liability risk it is still possible for a subcontractor to have a compensation claim made against it. Often this happens because someone who has suffered a loss will see a company name on a van and make their compensation claim against that company, assuming they are responsible.

While it may be possible to pass the compensation claim to the main contractor’s insurance to deal with, that’s not always straightforward, but the subcontractor’s public liability insurer will be able to handle that and will cover any legal costs involved.

There may also be a master insurance policy covering the work-in-progress and any materials on site, but that policy is unlikely to cover the subcontractor’s plant, machinery, tools and equipment, so the subcontractor will need an insurance policy to cover those. The subcontractor will also need insurance to cover their office equipment and any other property that isn’t on the project site.

If the subcontractor employs anyone, then employer’s liability insurance is a legal requirement no matter what the contract states. This is the case even if the subcontractor is only employing people on a temporary or casual basis. There are heavy penalties if an employer is found to be operating without employer’s liability insurance.

Subcontractors should also consider legal expenses insurance which would cover the cost of unexpected legal fees if there was a contractual dispute, and personal accident and sickness insurance, which would cover their lost income if they were unable to work due to injury or sickness.