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The insurance implications of sub-contractors

AS a business owner or someone involved in arranging insurances on behalf of a business, you may have been asked to provide information regarding the sub-contractors you use. An important question you need to answer from an insurance perspective is: are they bona fide or labour only sub-contractors? Depending on the answer, your insurance responsibility varies.

Callum Errington, Team Leader of the BHIB Contracting Team explains: “We operate a specialist team within the contracting sector and have become increasingly concerned by some clients’ assumption that because their subcontractors hold their own insurance, they are regarded as bona fide. Insurers see bona fide subcontractors as a contingent risk because, in taking on a job, they are bearing the public or product liability risk themselves, and so the cost of insurance is lower.

Conversely, with labour only subcontractors, insurers take on the full risk of public, product and employer’s liability. Care, therefore, has to be exercised when declaring the type of subcontractor you are using to undertake a project.”

Whether or not a subcontractor holds their own insurance policy should definitely not be considered a deciding factor, however the following should assist you in understanding the differences between the two types of subcontractor:

Ways to identify a bona fide sub-contractor:-

* They agree to do a job for a fixed price regardless of how long the job may take

* They have a contract for service as opposed to a contract of employment

* They regularly work for a number of different people other than you

* They hold their own Liability insurance in their own name.”

Labour only sub-contractors can be identified as follows: –

* They are paid by the hour, week, or month ad can receive overtime/bonus payments

* They always have to do the work themselves

* You can tell them at any time what to do, where to carry out the work or when and how to do it

* They work a set amount of hours

* You are responsible for completing the Risk Assessments

Callum added: “Many policies carry a strict condition that liability insurances of a bona fide subcontractor are checked on an annual basis and the limits of indemnity match that of the main contractor. If this is not being done then there could be cover implications in the event of a serious claim.”

The area of sub-contractors is one that can be very confusing and time consuming for businesses to manage. For further advice and assistance in this area, speak to Callum Errington at BHIB: email or call 01604 258749. You can also visit bhibinsurance.co.uk/businesses/contracting to learn more about the service.

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