Preventing the preventable and preserving your insurance cover

Periodically I write stories in our newsletter about real life commercial disasters which are so easily preventable but which have a habit of recurring with such frustratingly monotonous regularity that I feel compelled to warn readers in the hope that you may benefit from the mistakes of others. This is such a story.

Suppose, for a moment, that you are a builder, plumber, electrician or other trades-person who regularly does subcontract work. Typically, you receive a phone call asking whether you can quote for a specific job and you do just that. You attend at the contractor’s office, produce evidence of your insurance and sign the usual form of contract. You commence work and, a month later, a person who does not work for you and whose name you have never heard, falls off a ladder and sustains serious injury. He sues the principal who in turn sues your employing contractor who then sues you. You submit the claim to your insurance broker to be dealt with under your public liability insurance.

A few days later your broker rings to say that the insurer is refusing to indemnify you under the policy because you have expanded the insurer’s liability without its permission. Your solicitor points out to you that you have signed a contract with a “hold harmless” clause by which you have agreed to indemnify your contractor and the principal against any loss or damage to property or personal injury sustained by anyone “howsoever arising” while you are on site. Your insurance policy contains the usual exclusion clause which allows it to avoid any claim which you have incurred under a contract. The result? You are left without insurance to face the legal costs (which can be tens of thousands of dollars) of defending the injured person’s claim. If the claim succeeds, the results can be disastrous as you face the prospect of having to pay out a claim of perhaps hundreds of thousands of dollars.

It is worth noting that this is not an issue which is peculiar to the building industry. It is a problem which can occur in any circumstances where you are asked to provide indemnity to any customer, client or other contracting party against any risk of loss or injury to that party.

What is the solution to the problem?

Firstly, you must read carefully and understand all of the terms of any contract into which you enter.

Secondly, provide your broker with a copy of the contract and seek written confirmation of whether the risks within the contract are covered by your existing insurances.

Finally, if in doubt, give our team a call, arrange a meeting with us and bring the contract and your insurance policy to the meeting.

I am sure that you would prefer a one hour conference with your lawyer at the beginning of the contract to a long and very expensive court case at the end of it.

Please do not hesitate to contact our Insurance Law Team if you require further information.