However it’s one of the most important. Before you sign on the dotted line it’s vital to ensure you are fully aware of the primary liabilities, particularly at a time when there are increasing cost pressures within the sector and restrictions in insurance cover have become commonplace.
When something goes wrong in a construction project the potential risk exposure for contractors and sub‑contractors can be substantial. As one example, although some contractual parties may have professional indemnity insurance in place to protect them in respect of design liabilities, it is unlikely that this would cover additional responsibilities imposed by the contract which go beyond the traditionally agreed ‘reasonable skill and care’ definition.
Perhaps it is unsurprising then that when agreeing contractual terms, parties may elect to limit their exposure to a claim through wording and clauses which expressly limit, or even exclude, liability in some areas. Conversely, the other party to the contract will try to extend their liability and responsibility to others.
The relationship between blame and claim
If a principal contractor makes a mistake that leads to a claim, the liability will typically lie with them. So logic would suggest that if the mistake is made by a sub-contractor, they would be held liable. In reality, this is generally not the case. Contractual chains require a principal contractor to lodge the claim in the first instance and then instruct their insurers to reclaim expenses against the liable party, in this case the sub-contractor.
Given the claim will initially be attached to the principal contractor’s insurance, there may be a degree of frustration as insurer conversations progress and this may have a detrimental impact on your business. Any liability claim – whether ‘technically’ your fault or not – may affect your claims history and could carry implications when it comes to renewing your insurance cover. It may also lead to reputational challenges, particularly if there is any ambiguity around who is at fault.
Therefore, take time to fully understand the technical scope of the contracts you are signing and do not restrict the insurers ability to recover on your behalf.
Examining your contract
Taking the time to scrutinise the detail in your contractual agreement is an integral part of protecting your business.
Ideally, contracts from the principal contractor to the sub-contractors and designers should be back-to-back with the wording from the employer to the principal contactor. If the wording does not reflect this arrangement, the principal contractor will likely be unable to pass the costs of a claim on to those contractually liable for the problem.
Clear and detailed contract wording may also help you make a successful claim if liability does turn out to be yours. A missing clause could be the difference between a claim being paid or declined, which could potentially have a huge impact on cash flow.
Equally, if you are employed as a sub‑contractor you should ensure you have adequate liability cover in place to help protect your business in the event of a claim. In addition to this, sub-contractors should be aware that without producing evidence of public liability insurance they could lose out on valuable contracts from contractors who consider it an essential requirement and only choose to work with sub-contractors who have this cover.
Restrictions on cover
In a hardening insurance market, construction companies and contractors are being more frequently challenged by changes to policy wordings and reduced levels of cover. Particular care and attention to detail is required at this time to ensure that any changes or restrictions to cover do not place your business in a position where it is technically in breach of contract.
This may expose multiple parties and, therefore, it is important to familiarise yourself with the policy wording and being clear on where the liability rests in the event of a claim. If the contract states that liability for a certain event does lie with you, you should refer to your policy wording to check any restrictions, limitations, exclusions and clauses to determine if there are any gaps in your cover.
Even if you have been covered for certain events in the past, insurers may not be willing to insure against those same risks now. If you are managing multiple policies while insurers are frequently changing their terms and exclusions, the process of ensuring you have adequate cover can become even more complex.
The value of a broker
Given the increased difficulty in finding adequate cover in today’s tough insurance market, and the ambiguity that can often surround the subject of liability, the advice and guidance of a specialist is perhaps more important than ever.
Using an insurance broker with the necessary construction industry knowledge means that you may be able to negotiate less onerous contractual liabilities. In the event of a claim there is the added benefit of having the support of a specialist broker to guide you through the claims process, which can often be complex to navigate.
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