Subcontractor’s public liability insurance is similar to the public liability insurance that other businesses buy. It protects a business when a third party makes a claim for compensation against it.
Unlike employer’s liability insurance, it’s not a legal requirement. However, because the potential for claims is high and any claims that are made against a subcontractor have the potential to be extremely expensive, it’s something that no subcontractor should consider going without.
Most main contractors will not let a subcontractor on site if the subcontractor cannot produce evidence that they have subcontractor’s public liability insurance cover in place. It can be very difficult to find work unless you have this insurance.
What does public liability insurance cover?
Public liability insurance covers claims for compensation that are made against a business by a third party who has been injured or had their property damaged, and believes that the business was to blame for their loss. It covers compensation that you are legally liable to pay rather than goodwill gestures.
It also covers the legal defence costs that are incurred in the defence of such claims. This is important because even if a claim made against a business isn’t valid, it usually costs money to defend the claims. In addition to paying for the defence costs, the insurance gives you access to the insurance company’s specialist claims handlers, so you don’t have to defend any claims yourself.
How does subcontractor’s liability insurance differ?
Subcontractors public liability insurance covers everything that conventional public liability insurance covers but there are a few extensions. One of the main extensions is financial loss cover.
A conventional public liability insurance policy will only cover claims arising from injuries or damage to property. This creates a problem because contractors can do things that result in them becoming legally liable for a third party’s pure economic losses. An example would be where a subcontractor does not injure anyone or damage anything, but as a result of their actions, another business incurs additional costs.
Because a pure economic loss does not arise from any injury or damage, such claims would not be covered. The financial loss cover extension in subcontractor’s public liability insurance means that the policy does not have this gap in cover, and the policyholder will be protected in the event of such claims.
The other main extension that subcontractors need is the Indemnity To Principals Clause. This is needed because often, the subcontractor’s contract with the main contractor will make the subcontractor responsible for dealing with any claims made by third parties following an accident on site, even if the subcontractor did not cause the accident that led to the claim.
This means that any claims would otherwise have been the responsibility of the main contractor, become the responsibility of the subcontractor because the subcontractor has assumed contractual liability for them. The Indemnity To Principals Clause in the subcontractor’s public liability insurance policy means that the subcontractor is covered in the event of such claims being made.
It also means that the subcontractor is able to comply with the main contractor’s contractual requirements, which means that the subcontractor will find it much easier to find projects to work on. A subcontractor’s public liability insurance without an Indemnity To Principals Clause is unlikely to be deemed acceptable to a main contractor.
Finally, like all contractors public liability insurance policies, subcontractor’s public liability insurance policies often have higher indemnity limits that many conventional public liability insurance policies. This is partly because the work can be hazardous and partly because the work is often carried out near members of the public and their property. Both of these factors can increase the chance of an expensive claim being made against the subcontractor.
Whereas a conventional public liability insurance policy would typically have an indemnity limit of £1,000,000, a subcontractor’s public liability insurance policy could have an indemnity limit of £5,000,000. In fact, many main contractors insist that their subcontractors have indemnity limits at this level as a condition in their contract.