Do Sub-Contractors need their own insurance?
At CJ Insurance we understand the security industry and therefore we appreciate quite often the team is put together with various individuals. These individuals are providing a sub-contracting service for the hours, days or weeks required rather than full time employment. In these instances, the main contractor will often confirm that they are insuring you – but often the devil is in the detail.
In insurance there are two classifications for sub-contractors:
Labour Only - A contractor typically providing a certain number of hours, days or weeks to the main contractor. For example, Bob secures a contract and he brings in James and three others to form a 4 man RST team working 12 hour shifts, continuously for 3 days. Each contractor then invoices Bob for their time.
Bonafide Subcontractor - A contractor bringing their own expertise, own equipment, often working unsupervised or indeed running this element of the task. For example, Bob is asked to provide an RST team for a weekend in Scotland. He is London so agrees to sub-contract this out to Geoff who puts his own team together. Geoff will invoice Bob to provide the services for the task. Finally Bob will invoice the client.
As a rule any Labour Only Subcontractor for insurance purposes is classed as an “employee” of the Main Contractor. This is completely unrelated to the Tax aspect. It simply means that the underwriters charge the relevant premium to reflect the following two factors. Firstly, if you are hurt at work there is a chance you may claim against the main contractor. Secondly, if you make an error there is a chance the principal will sue the main contractor.
Likewise any Bonafide Subcontractor is NOT going to be insured by the Main Contractor. They are running the task and if they are hurt or there is a claim from the Principal, then the buck stops with the Bonafide Subcontractor.
The most common statement we see is "The Main Contractor is insured so I do not need my own insurance". Often this is incorrect. You do need your own in the event of a claim from the Principle against the main contractor. It is the insurers decision to pursue the subcontractor for reimbursement of the costs they incurred - should they feel the subcontractor is liable. This is called Subrogation, subrogation is the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is standard procedure for the insurance industry and providing you have insurance in place your own insurers would protect your position. The problem is if you don’t then they may come after you and your assets.
It is important to remember the difference the law makes. Most commercial contracts are subject to Contract Law. The Principal awards the contract to the Main Contractor. If the main contractor then sub-contracts this to a Bonafide Subcontractor who has the insurance then all is well. In fact sometimes the Main Contractor takes their cut and does not feel they need insurance for the task! This is also wrong. If there is an issue on the task and the Principal looks for compensation then certainly a claim for breach of contract is an option. The only name on the contract is that of the Main Contractor and therefore the client can only take legal action against the Main Contractor under contract law and not those running the task.
So in summary:
Do I as the Main Contractor, need insurance where I subcontract the job? Yes.
Do I as a Sub-contractor require Liability insurance? Yes.
Therefore, the first thing you need is written confirmation from the Main Contractor. Stating that whilst you are on task for them, you are covered under their insurances for Employers, Public liability & Professional Indemnity. Alternatively, if you need cover in your own right, what limits are required.