Insuring against sub-contractor defects

Recently there has been discussion within the Association’s Facebook page involving a situation whereby a sub-contractor was engaged to lay concrete. This contractor then went out of business, in the meantime the client rejected the finish of the concrete.

This raised the question as to what liability insurance protection is there available to the builder acting as head contractor, covering sub-contractor’s workmanship. I approached BrokerWeb Risk Services for a statement on this. A short form version of this statement has been posted on Facebook, the discussion from members is worth a read.

BWRS Statement:
Firstly, there are various Liability Insurance policies available – some automatically include faulty/defective workmanship to $100,000.  Some policies it is an optional extension for which an additional premium will be charged.

In order to include sub-contractors under the Main Contractor’s (Builder) Insurance, the Insurer will require details of the sub-contractors – who are they, what amount of work they are doing, what type of work and previous history of that sub-contractor. Ultimately, the builder will be paying the Insurance for the sub-contractor. To have an open cover of sub- contractors will be very expensive and difficult to obtain as the Insurer has no idea of what risk they are taking on.

If the builders are working with Professionals such as Architects, Surveyors and the like, they can obtain a Professional Indemnity Policy which provides cover for Vicarious Liability.  This will provide cover for the error or omission made by the Professional where the Builder may be jointly liable. Eg. Plans are incorrectly drawn, builder draws them to plan which end up with wrong measurements or the like.

Note that the Professional must hold the same amount of Professional Indemnity Insurance.

The best answer is for the Builders to check with their Insurance Brokers as to what cover they have themselves – is faulty workmanship included?

Any sub-contractors – need to provide a Certificate of Insurance along with confirmation of payment of premium each year to the Builder (main contractor).

In the next issue of Inhouse, BWRS will submit an article expanding on this statement.

Written by: Jason McClintock, Operations Manager NZCB

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