Are all sub-contractors covered in a public liability policy?

A sub-contractor is an independent third party who provides a service on behalf of an Insured.  Sub-contractors generally specialise on one particular service, and an Insured may engage several different sub-contractors as part of their overall offering to their customers. An Insured may also engage independent third parties to provide services to their business, but these parties are not necessarily considered to be sub-contractors. So what’s the difference?

What is a sub-contractor?

Let’s use the example of a cartage contractor who has direct employees who drive the Insured’s own trucks, as well as third party contract drivers. As the third party drivers are performing activities consistent with the main service offering of the Insured, they are considered to be true sub-contractors. Because they are completing this work for the Insured’s customers on Insured’s behalf, the Insured could potentially be held vicariously liable for that work, and they therefore should be declared to the Liability insurer.   

Who is considered an independent third party?

So when is an independent third party not a true sub-contractor? If we use the same example of the cartage contractor as our Insured, as well as sub-contractor drivers, they also engage an accountant to do their books and a mechanic to service their trucks. The accountant and mechanic are again independent third parties, but the work they perform is not part of the Insured’s service offering, and they are not performing work for the Insured’s customer on the Insured’s behalf. They are simply providing a service to the Insured’s business. These type of third parties do not need to be declared to the Liability insurer as they do not contribute to the Insured’s liability to third parties.  

Implications of using sub-contractors for public liability insurance

As discussed above, the Insured could potentially be held vicariously liable for work performed by the sub-contractors. For third-party injury or damage caused by a sub-contractor, the Insured will generally be the one who receives a demand from that third party. The Liability Insurer may then be able to pass on some or all of the cost of that claim to the sub-contractors Insurer. This is why most Insurers require policyholders to attain some form of evidence that any sub-contractors they engage have their own liability insurance in place.

In addition to this, the Insured is also potentially liable for injuries sustained by the contractor in the performance of their work for the Insured. The sub-contractor may or may not be covered by their own workers’ compensation policy depending on the relevant state legislation. If they are not covered by a workers’ compensation policy for the injury, then they may claim directly against the Insured. If the sub-contractor is covered by a workers’ compensation policy, the Insured may still face a recovery action from the workers compensation Insurer if they are deemed to have contributed to the injury.

Don’t forget to declare sub-contractors on a public liability policy

where a sub-contractor is providing a service to the Insured’s customers on the Insured’s behalf, you must declare all sub-contractor payments to the insurer. You should also ensure that a sub-contractor has their own Public & Products Liability coverage.

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