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[ Focus: Insurance ]


have a knock-on effect for the contractor waiting for work to be completed if the sub-contractor is unable to carry the financial loss. The worst-case scenario is that a substantial uninsured loss could put the sub-contractor out of business, leaving the main contractor with delays on the project and the need to find a replacement sub-contractor.


Don’t assume A contractor bringing sub-contractors onto a project carries the responsibility to ensure that they have the required insurance – and reputable contractors would automatically request a copy of the current insurance certificate. Best practice relating to a sub-contractor’s proof of insurance would be to keep a copy of its certificate on file, with a note of the renewal date. If the project runs past that date, a copy of the updated certificate should be requested automatically. One issue that could arise relates to businesses


that pay for their cover by monthly instalments. It is quite possible for a business struggling financially for survival, to put insurance in place on renewal and receive a certificate that states it has cover for 12 months. But if, in an attempt to cut costs, it fails to meet a monthly payment, the cover is invalid – although it still has the certificate of cover in its possession. These financial arrangements are not visible, and the contractor could unwittingly become liable for any claim relating to negligence by the sub- contractor, having appointed them in good faith on the basis of the insurance certificate.


Is professional indemnity needed? While the need for public and employer liability is well understood, not many sub-contractors carry professional indemnity (PI) insurance – some may consider it superfluous. The problem is that many don’t realise that much of the work they do automatically confers professional liability on them. Where there is any design element to a job, a


sub-contractor should always consider PI cover, which offers protection in the event of a claim for damage arising from neglect, error or omission due to professional negligence. The issue arises over what constitutes ‘design’. In this context, it essentially relates to a tradesman using his professional knowledge to make a decision on the detail of an installation – and this could come down to something as simple as deciding where a light switch should be located. So if, for example, a sub-contractor is responsible


for the installation of a heating system that fails to perform to specification due to an error in calculation on the sub-contractor’s part, the responsibility would fall to the sub-contractor and should be covered by PI. However, we come back to the issue of cover remaining in place. If the system is installed on 1 June 2013 and the sub-contractor’s PI cover lapses on 31 December 2013, should a fault occur on or after 1 January 2014, the sub-contractor’s insurance would no longer apply, and liability would, quite probably, fall back onto the main contractor. This is a situation that


September 2013 ECA Today 61


It is essential to ensure that any sub-contractors employed carry adequate cover for the various liabilities they may face


applies both with PI and public liability cover, and one that we are increasingly seeing – either because the sub-contractor’s insurance has lapsed, or because it has gone into liquidation. Should legal action arise, courts look at the


relationship between those who are managing or controlling the work and those working on site. In their view, on the whole, the main contractor would be managing or controlling the work, not the sub- contractor so, ultimately, responsibility falls on the main contractor. This is never a black and white issue, and courts can determine legal liability differently. However, the key fact is that courts will look to who they believe to be controlling the site for ultimate liability.


About the author


Roger Brown is managing director at the Electrical Contractors’ Insurance Company (ECIC).


The need for vigilance While the economic climate remains as it is, costs will continue to drive the way construction projects are structured, and contractors will look to bring in sub-contractors as cheaply as possible to make bids competitive. This, in turn, increases the need for vigilance. Contractors must ensure that they make every effort to determine both the professional capabilities and the financial security of the sub- contractors employed – and it is essential they ensure that their sub-contractors have the correct type and level of insurance cover in place. Sub-contractors, for their part, should be very wary of overstretching themselves in a bid to win business and, most essentially, should not consider reducing or avoiding insurance premiums as a valid cost-cutting measure. No one has a crystal ball, so it is impossible to


determine what might occur in the future. However, making sure that sub-contractors are adequately insured to carry out the work they are being employed for, and that insurance cover is provided by an insurer who understands the industry and will respond quickly to any claim, are measures that can be taken to help secure a successful outcome.


SHUTTERSTOCK / GORDON BALL LRPS


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