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A subcontractor will have liabilities under the contract that he should insure against for his own protection – with a Contractors’ All-Risks policy as covered in last month’s issue, for example – but there are also contractual obligations to maintain certain other types of insurance cover.

Public liability insurance, or third party insurance as it is sometimes known, is a contractual requirement of section 6.5 (all section references relate to JCT 2005, Standard ÐÇ¿Õ´«Ã½ Subcontract, SBCSub/C).

It is taken out by the subcontractor in respect of his liability for personal injury or death of any person and for loss, injury or damage to property for claims arising from the subcontract works.

The sum to be insured is set out in the appendix to the subcontract conditions. It is essential to have insurance cover for the minimum amount stated for any one occurrence or series of occurrences arising from one event.

Should the subcontractor default in providing public liability cover, the contractor may take out the insurance on his behalf and deduct the cost from monies due.

Public liability and employers’ liability policies are often combined. Employers’ liability is a compulsory insurance required by the subcontract and the Employers’ Liability (Compulsory Insurance) Act 1969. Failure to maintain a policy will result in both breach of contract and penalties under the law.

Subcontractors can be fined up to £2500 for any day they are without suitable insurance. There is a further fine of up to £1000 for not displaying the certificate or not producing it for an HSE inspector.

There is a minimum cover required of £5 million, but most insurers offer cover of £10 million. In view of the long tailback of employees’ claims for illnesses such as asbestos-related diseases, certificates of expired policies should be retained for at least 40 years.

A subcontractor may choose to insure against other risks. Credit insurance, for example, will cover against non-payment due to a contractor’s insolvency or failure to pay on time.

Public liability insurance, or third party insurance as
it is sometimes known, is a contractual requirement

The terms of these policies will possibly include a cap on the amount of credit to be insured, use of a debt collection service on a mandatory basis or a service to assess the financial standing of the insured’s clients.

The construction industry is notorious for its contractual disputes, which often lead to legal action and devastating costs. Contract dispute legal costs insurance can meet the legal fees and costs of pursuing or defending legal actions, and may also apply to adjudication and arbitration costs.

This type of policy can expose the insurer to high risks, so conditions will apply. For example, contracts must be in writing and the terms and conditions must not be onerous. There must be a reasonable chance of the insured succeeding in the action and there will be a minimum disputed sum applied to claims.

The insurance must be taken out prior to a dispute arising, but there is another policy that can be arranged after the dispute has arisen.

After the event insurance is expensive and therefore more relevant to large court cases. Policies are almost tailor-made for each dispute. The underwriters assess the chances of the insured’s success to establish the premium. Most offer the option of protection from paying the other party’s fees or both parties’ fees, but not the insured’s fees alone.

Premiums are normally paid in advance, in whole or part, and subsequently payment is related to the stages of the proceedings. This provides for a lower payment, for example, if the case is settled before trial.

There is likely to be a condition whereby underwriters decide on whether an offer of settlement can be accepted or not. The procedures can be further complicated by the facility to insure against loss of premium.

Contractual obligations to insure under the subcontract must remain in place until practical completion or termination of the subcontract. The ECC2 and NEC3 suites of contract require insurance to remain in force until the defects certificate has been issued, so it is advisable to make your insurer aware of this extended period of liability.