Does Professional Indemnity Insurance cover subcontractors?

PI insurance

Working with subcontractors to take on work outside the scope or scale of what your business can handle alone, whether it’s specialised tasks or larger projects, is far from abnormal. However, it does raise questions about insurance and liability. When you take on a subcontractor, you take on the liability for their work, but are you also covered for it?

About Professional Indemnity Insurance

This insurance protects your business against claims of damages or other kinds of loss should a client or other party assert that you have been negligent or made a mistake. Not only does it cover the costs of the loss itself, but any legal costs that might be accrued in disputing the claim.

In some cases, professional indemnity insurance is a requirement for certain industries, including accountants, architects, engineers, and so on. However, those in other industries may still choose to purchase it even if they aren’t required to. Since professional indemnity insurance is used across a range of industries, what it covers can change drastically from policy to policy.

Professional Indemnity Insurance and Subcontractors

It is possible that your professional indemnity insurance covers your subcontractors and the work that they do, but that’s not always the case.

Rather than covering the subcontractor directly, it may include a subrogation clause.

A subrogation clause involves taking legal action towards the subcontractor in the cases of their negligence result in an insurance loss, recovering the costs of your claim. As such, the subcontractor ends up paying the cost of the claim rather than the insurance provider.

However, subrogation is not always the correct course of action, it depends on the type of work engagement, the cause of the claim, and whether or not any mention of providing indemnity for them was made.

As such, it’s recommended that contracting firms either choose a professional indemnity insurance policy that does cover contractors (which can be more expensive) or that they specifically work with subcontractors who have their own professional indemnity insurance. As such, if they are liable for damages or other costs, it is at least a certainty that there will be insurance cover for it.

Protecting yourself when working with a subcontractor

When working with a bona fide subcontractor, managing your liability as best possible is essential. Make sure that they are fully licensed and insured for the type of work that they’re taking on. Ensure they have the experience necessary by asking for examples of past work and references and ensure your expectations of their work are laid out clearly and specifically in written form. Finally, you may consider having them sign a risk transfer agreement ahead of time, which ensures that they are made accountable for their own work, rather than your business.

Your professional indemnity insurance may be able to protect you from the costs of damages and loss caused by the negligence or a mistake, but it depends specifically on your policy. If you’re looking for a professional indemnity insurance policy, whether it does or doesn’t cover subcontractors, Gold Crest Insurance can ensure it suits your needs.

I can therefore confidently recommend Goldcrest Insurance to anyone that wants good affordable insurance with great customer service.

- Greg Newman - DOR-2-DOR

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