Many businesses and contractors make use of bona fide subcontractors in order to provide them with additional work capacity and capability on projects and contracts.
The true bona fide subcontractor should amongst other factors, have their own insurance in place for the work that they undertake and as such the insurance that is in place for the main contractor provides only for the contingent risk of the work undertaken by these subcontractors.
What many businesses may not be aware of is that their policy may be subject to a “Bona Fide Subcontractors Condition” and it is essential that the terms of this condition are complied with otherwise the policyholder’s cover may be prejudiced but what is a Bona Fide Subcontractors Condition.
What does the bona fide subcontractors condition say?
The actual wording of the condition will differ from insurer to insurer but in general the wording is similar and is designed to ensure that the policyholder has taken all reasonable steps to ensure that the bona fide subcontractor has the correct insurance in place and in fact it is a condition precedent to liability under the policy that this has been undertaken. Failure to do so could invalidate your insurance. The condition refers to the limit of indemnity under the subcontractors policy, the business description and may restrict the total amount of work that may be undertaken by bona fide subcontractors on behalf of the insured. It will not only require that you check the insurance but that you can evidence that these checks have been made.
Why do insurers impose the bona fide subcontractors condition?
The premium that is paid for a liability insurance policy is calculated on a range of factors, one of which is the amount of work that the policyholder undertakes. If the policyholder declares that a certain level of work is undertaken by bona fide subcontractors then the premium is heaviliy discounted or discounted entirely in respect of that work. If the subcontractors do not have the necessary insurance in place then the exposure to risk faced by the insurance company can be vastly different from the expected exposure based on the information provided. In other words you have not paid the correct premium for the risks faced by the insurer. In some cases this could be the result of an oversight and insome cases it could be a deliberate attempt to mislead an insurer in order to obtain a lower premium.
What information do I need to check on a bona fide subcontractors policy?
It is not sufficient to confirm that they have a policy in force, you also need to check that the business description under the policy is appropriate for the work that they are undertaking and that the limit of indemnity under the policy is adequate.
What is the wording of the bona fide subcontractors condition?
The wording varies but an example of one wording is as follows;
In respect of work commencing within the Period of Insurance it is a condition precedent to liability in respect of Injury or Damage arising out of or caused by work undertaken on behalf of the Insured by bona fide subcontractors that:
a the Insured obtain and retain a written record that such subcontractors have in force throughout the duration of any work undertaken by them on behalf of the Insured Public Liability Insurance with a limit of indemnity not less than £1,000,000 covering legal liability for Damage to property and Injury to any person other than an employee
b in the event of a claim related to work undertaken by bona fide subcontractors the Insured shall provide documentary evidence of the Public Liability Insurance held by such subcontractors at the time of their appointment to carry out the work.
What if the bona fide subcontractor cannot produce or is unwilling to produce evidence of insurance?
This is a simple one, you need to find another subcontractor who will.