Subcontractors: What’s the Risk?

There is a common misconception that there is no risk to an insured where they subcontract activities out. Liability Underwriter, Gavin Boyle from Solution Underwriting Agency, busts the myth and explains how your client can best protect themselves.

Subcontractors: What’s the Risk?

A subcontractor is an independent third party who provides a service on behalf of an insured. Subcontractors generally specialise in one particular service, and an insured may engage several different subcontractors as part of their overall offering to their customers.

As the subcontractor is completing this work for the insured’s customers, on the insured’s behalf, the insured could be held vicariously liable for that work.

If there is third-party injury or property damage caused by a subcontractor, the insured will generally be the one who receives a demand from the third party. The liability insurer will seek subrogation from the subcontractor’s insurer for the subcontractor’s liability.

The insured should obtain evidence from a subcontractor they engage of their own liability insurance in place. If a subcontractor does not have their own insurance this can put the insured (and their insurer) in a difficult position. They may have to pay the claim and then seek to recover from the subcontractor, with no guarantee of success.

The insured is also potentially liable for injuries sustained by a subcontractor in the performance of their work for the insured. The subcontractor will likely have their own workers compensation policy. If they do, the subcontractor’s workers compensation insurer will finalise the workers comp claim and then might seek recovery from the insured’s liability insurer if they are deemed to have contributed to the injury.

This is typically known as a Worker to Worker claim, they can take years to become known and can be very expensive. Hence worker to worker claims nearly always have a much higher excess.

Subcontractors can help a business to expand and specialise, but it’s imperative they do not forget the associated risks. Always ensure there’s an opportunity for your client to subrogate loss and consider any impact to their own policy.


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