Sub-Contractors and Vicarious Liability

Chris Webber provides a general overview of your responsibilities when engaging contractors

Following on from our recent risk management presentations at the regional meetings, we thought it timely to highlight another risk management aspect to be aware of. The idea is to provide a general overview of your responsibilities when engaging contractors.

This is part one of a two part article. Part two will cover your responsibility as a sub-contractor to a third party principal.

This article focusses on you and your business acting as a principal contractor.

Engaging Sub-Contractors and Vicarious Liability

For small business owners, vicarious liability is an important concept to understand. Why is that? Because vicarious liability can mean you and your business are held responsible for any claims that may arise as a result of the actions of your subcontractors.

Defining a Subcontractor

The use of subcontractors is common among a wide range of industries in Australia, especially within the building, design and construction industries.

A subcontractor can be defined as a person or company who is appointed to provide part of the services that a contractor has agreed to provide to a principal.

The nature of subcontractors can vary between professional services such as designing or consulting to the delivery of a product, service or outcome such as maintenance, repairs, servicing, manufacturing, building and construction.

Subcontractors and Insurance – What Should I be Aware of?

When it comes to insurance, the relationship between an employer and subcontractor can be complex.

As we know, things don’t always run according to plan, and incidents occur during the course of running your business that may result in loss or damage by a third party.

In some instances, an issue may arise directly as a result of the actions of your subcontractor.

For example, you may be a building contractor who has engaged a plumber to complete the plumbing work in a new residential home you are contracted to build by the owners.

The owners of the new home have come to the building site to inspect the progress of their home and during their visit, the owner has tripped on discarded piping and injured themselves – requiring medical treatment.

In this situation, it may be that you are held vicariously liable for the actions of the subcontractor, even though it was not your direct actions that lead to the incident.

By law, the principal (or contractor) is considered vicariously liable for the actions of its agents (subcontractors).

What is Vicarious Liability and How Do I Avoid It?

Vicarious liability is the imposition of liability on one person for the negligence of another to whom the former has entrusted (or ‘delegated’) the performance of some task on their behalf.

Vicarious liability doesn’t just arise in instances where the actions of your subcontractor has led to injury – you can also be held liable for your subcontractors’ failure to complete a job or perform a job correctly or any other violations of their contract.

Bearing this in mind, it is essential that you have the correct insurance in place to protect yourself from being held vicariously liable for the actions of your subcontractors.

Many sub-contracts contain clauses requiring the subcontractor to indemnify you as the head contractor for its liability for death, injury or damage caused by the subcontractors.

Beware however – this does not automatically mean you are free and clear of all responsibility for the actions of your subcontractors. Each party is required to hold insurance to cover the indemnity they have provided.

Therefore, our key recommendations for ensuring you are protected from vicarious liability claims are:

  • Contact your insurance broker and notify them that you will be engaging subcontractors so the appropriate insurance can be arranged to protect your interests;
  • Ensure the subcontractor you are engaging holds an adequate level of insurance.

In taking these steps, you can continue to operate your business with the peace of mind that, in the event of an incident on the job, you and your subcontractors are adequately covered.

If you would like further information about subcontractors and the implications of vicarious liability, please contact us.

Webber Insurance Services is the approved Insurance Broker of the BDAV. Contact Webber Insurance Services on 1300 668 553 or email bdav@webberinsurance.com.au