A lot of tradies feel that their public liability insurance will look after them if anything goes wrong on the job site.
It will certainly look after a lot of things, specifically if they are a result of your negligence, or to put it really simply, a stuff up.
But what about cases where you have not been negligent or “stuffed up”. Your public liability won’t cover those events, but if it wasn’t your fault you shouldn’t have a problem right…?
Wrong!
If you’re signing contracts with large building companies and contractors, you might find that the contract makes you responsible for a whole lot more than you thought.
Example
The easiest way to explain contractual liability is to look at a real world claim.
A backhoe operator was contracted to undertake work on a site by another contractor, who was in turn contracted by the main contractor.
There was an incident on site where another worker suffered a serious injury, and as often happens the whole thing went to court.
Ultimately it was found that the backhoe operator was liable for 20% of the damages, the middle contractor was responsible for 40% and the main contractor for the remaining 40%.
The backhoe operator had public liability insurance, and because his 20% share of responsibility came down to negligence, his insurance covered this amount.
Seems pretty straight forward right? Well the second part to this story is where it gets nasty…
The contract signed between the main contractor and the middle contractor passed on all responsibility for incidents on site to the middle contractor.
And the contract between the middle contractor and the backhoe operator passed on all responsibility to him.
See where this is going? Although the backhoe operator was really only responsible for 20% of the damages, the contract he signed meant that he had to take on the responsibilities of the contractors further up the chain.
His public liability covered the 20% that he had to pay due to negligence, but it did not cover the remaining 80%.
Why didn’t his public liability cover the full claim? Because only 20% of the claim was due to negligence, and that’s all that public liability covers.
The remaining 80% was a contractual issue, and this is where contractual liability insurance comes in.
We don’t know if the backhoe operator had contractual liability insurance (he was not a client of ours), but if he did, it would have kicked in and covered the 80%, leaving the client fully covered.
If he didn’t have cover, well he would have found himself seriously out of pocket and probably headed towards bankruptcy given the typical size of these claims.
Read your contracts!
The important lesson here is to make sure you fully read and understand the contracts you are signing.
Passing down responsibility via contracts is very common amongst the larger building companies and contractors, and it is often the smaller subbies who are most impacted by this.
You need to read the contracts you are signing, and if the contract results in responsibility or liability being passed down the chain, you need to make sure you are insured for this.
The great news is that via Trade Risk, we can have a specialist look over your contract to see whether or not you have any exposure, and then recommend insurance to cover this.
And importantly, if there is no exposure, we won’t recommend a policy. Why pay for insurance you don’t need right?
Who needs this insurance?
You might think that only the big boys need to worry about something like contractual liability, but it’s actually the smaller guys most at risk.
As a sole trader, or even a small company with a few staff, you don’t have a huge amount of power when it comes to negotiating contract terms with the big contracting companies.
If you want the work, then you have to sign their contract. End of story.
If something goes wrong on site whilst you’re undertaking work, they will use that contract to pass all of their responsibility straight onto your shoulders regardless of whether it’s your fault or not.
What’s the easiest way to avoid the issues? Simply take out an annual contractual liability policy and you can rest assured that you will be looked after.
Whilst the cover is more expensive than public liability, it is not overly expensive for a small business and if you signing contracts with big builders it is very much worthwhile.
For more information about the cover or to get a quote, simply call us on 1800 808 800 or contact us online.
