The Issue

It is now industry standard for the principal contractor for a large construction to include in all sub-contracts terms that pass liability for accidents on to sub-contractors. This liability is often uninsured despite sub-contractors believing their policy covers them fully.

Example terms

2 clauses frequently used are indemnity and insurance clauses.


The sub-contractor is required to indemnify (pay for any claim) the principal for any liability incurred by the principal arising from or connected to the performance of the sub-contract works.


The sub-contractor is required to take out a public liability policy which covers the principal for any liability arising from or connected to the performance of the sub-contract works. Danger!

A real issue for sub-contractors is the limits of their existing public liability policies and how they do not extend to this type of liability, leaving them uninsured for this liability.  Further trouble occurs when a sub-contractor arranges for another contractor to perform some of their contract works, leaving them exposed for this parties possible negligence in a claim by the principal for indemnity against them.  And again their insurance cover will not apply!

The reason for these dangers is the public liability policies commonly arranged for contractors do not automatically cover contractual liabilities like this situation.  It requires a special type of policy or an addition to the existing policy.  A further complication is where the person injured is covered by a WorkCover insurance claim – this is also used to exclude a public liability claim brought by the same worker against other contractors, like the principal.  So, while you may be covered for your worker’s claim against your company, your policy will not cover you if the worker claims against the principal.

Yet more complications can arise where the policy does not exclude contribution claims between insured parties.  So even if the principal is named in the policy, the contribution claim may not be covered.


It would be great to delete these clauses from the sub-contract before it is signed.  If principals insist on these terms, then you should price the higher cost of the insurance and risk into the sub-contract.  Get a quote on adding this risk to an existing policy or a new policy and add that to the quote.

To give you an example of what happens when something is missed, a recent claim resulted in a $50,000 legal expenses claim by the principal against the sub-contractor despite neither the principal nor the sub-contractor being negligent (the negligent party was a sub sub-contractor).  And this claim was not covered by any insurance policy.  If the principal did have to pay out on a claim, this would have been added to the indemnity claim and could be in the hundreds of thousands of dollars.

We urge you to check any sub-contract before signing and call us to help you navigate this potential minefield.

Our Services

Salerno Law’s personal injury and compensation law team are experienced and understand the impact these matters can have on people’s lives. We treat every case with the individual attention it deserves. We are dedicated to delivering the best results for all of our clients.

Contact one of our offices today to discuss any legal issues you may have.

Written by

Tima Walker & Peter Matus