WNA Blog




Thu 15 Oct 2020

Sub-Contractors Are Great — What Are The Risks?

Finance & Insurance
Tips on contracts, sub-contractors and how they can impact your Insurance.

Businesses use subcontractors to perform tasks on their behalf.   This could be due to needing extra hands-on-deck, or requiring extra skills they don’t have. 

For example ‘Johns Plastering Co’ may sub-contract ‘Simons Scaffolders Co’ because they don’t have any qualified or experienced staff within their existing team to erect scaffolding.  For John & Simon to conduct business effectively, they should have a contract in place. 


A contract makes each party responsible for elements of the job. If you don’t know what you’re responsible for under the contract, you can’t protect yourself. John will use a contract to spread some of the risk to Simon. Simon will use the contract to work out his risk and spread what he can to his Insurance company. 

Know your Risk under the Contract  

A contract is just like a tool – and if you don’t know how to use it you can be sure of some unexpected results! This may seem obvious, but when entering into any contract, it’s vitally important to understand the contract. You need to understand your position, what you are expected to give and what you can expect to get out of it. Knowing your risk helps you to set a price for the work and insure against this risk where you can.  

Insurance and Risk 

Once you have worked out your risks under the contract, you need to work out the potential costs of these risks and what you can insure against. This spreads the risk onto the insurer, but is another contract that you need to understand. There are several key elements you should be aware of in an Insurance Contract.

Limits of Insurance Cover 

Know how much you are insured for or can be insured for. If you need to make a claim, you can only claim up to the limit you are insured for. This is one of the reasons it’s so important that you know what risks you’re taking on under the base contract. If you are at risk of being sued for $5,000,000 and you are only insured for $1,000,000 then you may be vulnerable for the shortfall.  

Similarly, insuring yourself can be costly and unnecessary. If you are only at risk to the tune of $5,000,000 but you are insured for $20,000,000 then you are needlessly adding to your costs.  

What is Covered – Exclusions

Exclusion is an express set of circumstances that the insurer will not cover under the policy. Standard exclusions are written into the Policy Wording or in the Policy itself, often excluding circumstances of fraud, willful misconduct, recklessness, gross negligence, or corruption. These exclusions can also include industry specific risks or likely events.  


Subrogation is when the insurance company steps into your shoes to recover money paid under an insurance policy. For example, if Simon causes a claim to be lodged against Johns business, then John’s insurer will legally pursue Simon for reimbursement of the total claim cost 

Johns contract may require Simon to remove his rights of subrogation against John. This may increase Simon’s insurance premium. 

Principals Indemnity  

Scaffolders are not covered under a plasterers Liability Policy. To protect himself, John will have a contract drawn up requesting Simon to provide him with a ‘Certificate of Currency of Liability Insurance’ which names John as a principal on Simons policy. This allows John to make a claim on the scaffolders’ policy if the scaffolder is responsible for a claim. 

Depending on what type of work the subcontractor does will determine if John wants to be named on their policy. It could be a waste of time for John to be named on another Plasterers insurance policy. 

Worker to Worker claims 

When John discusses his contract & policy with his Insurance Broker they will look at the Excess that applies to any ‘Worker to Worker’ claims. 

‘Worker to Worker’ claims is where one of John’s staff (or subcontractors) cause injury to another subcontractor. It is Johns responsibility to provide all of his workers with a safe work environment. 

In the event someone is injured John may be held responsible. The injured worker can claim against his Workers Compensation insurer, who in-turn will claim against John for not providing a safe environment to work. 

Big Tip 

Both John & Simon need to provide the information to their Insurance Broker and their Commercial Contracts Lawyer before they put pen to paper. 

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