When arranging your Public and Employers Liability insurance (sometimes referred to as Combined Liability) each year, your insurers will request various pieces of financial information which, along with other risk information such as your trade, details of depth and height work, processes and work locations, they will use to calculate the insurance premium to be charged.
Typically this financial information will include your annual estimated turnover (which impacts on the Public Liability aspect of the premium) and annual wage estimates (which impacts on the Employers Liability aspect of the premium), usually split into different categories such as manual vs non-manual. Non-manual work representing the least risk of injury (e.g. office workers) and manual work representing a higher risk of injury (e.g. construction site operatives).
However insurers will also require information on your annual payments to sub-contractors. This is because using sub-contractors brings with it additional risk which insurers will want to build into the premium. To complicate matters, insurers will categorise these sub-contractors into two distinct types; “Labour Only” Sub-Contractors, and “Bona Fide” Sub –Contractors and they will want these estimates split out between the two categories as they represent different levels of risk.
Labour Only Sub-Contractors are generally deemed to represent the same or similar risk as a direct employee because if they were to become injured at work, they are likely to make a claim against you (under your Employers Liability insurance) as if you were their employer. Although technically self-employed, “labour only” sub-contractors work under your direction and generally do not provide their own material or tools (with the exception of small hand tools). They may have their own insurances in place however they should be treated as Employees for the purposes of your liability insurance.
In contrast, Bona Fide Sub-Contractors pose little or no risk to your Employers Liability cover as they generally work without your input or direction. They tend to hold their own insurances and will usually provide their own materials and tools. An example might be a specialist Demolition Contractor brought in to demolish a building as part of a larger contract.
Whilst Bona Fide Sub-Contractors pose little risk to your Employers Liability cover, and they carry their own Public Liability insurance, it is still possible that their activities could lead to a claim being lodged against you under your Public Liability cover. For example, they could do something outside the scope of their own insurance cover that leads to a claim or they simply may not have paid their premium. Additionally, it could just be that a third party decides to make a claim against you for the negligent actions of one of your bona fide sub-contractors (rather than making a claim against the sub-contractor directly), which you will need to defend. The risk posed by Bona-Fide Sub-Contractors is termed in the insurance industry as “contingent risk” and as such premiums charged by insurers for this contingent risk are typically low.
It is therefore crucial that annual payments to all types of sub-contractors is disclosed accurately to your insurers to ensure that you are fully protected for the consequences of their actions or omissions.
Construction Risks UK have a wealth of experience in arranging insurance cover for companies operating in the construction sector and who might use various types of sub-contractors. Our expert advice and guidance means that our clients are adequately covered whilst ensuring that premiums are competitive.
If you wish to discuss your insurance needs, please don’t hesitate to contact us on 03300 53 9494
