The sub-contracting of works on a construction site has become far more the norm than the exception. However, far too often the issue of insurance cover as it pertains to sub-contractors remains largely misunderstood or based on incorrect information. Specifically, sub-contractors are often unclear as to whether they are under an obligation to insure their work or, alternatively, to what extent they are covered by the main contractor’s own insurance.
The short answer to an otherwise complicated legal question is that there is no inherent obligation on a sub-contractor to insure its own works. Put differently, there is no legislation or common law that presently requires the sub-contractor to have any insurance policy in place relating to its work, simply as a consequence of it being a sub-contractor.
In general, a sub-contractor is only obliged to provide insurance cover if the terms of the sub- contractor agreement with the main contractor provides for this. Conversely, if there is no contractual provision to provide insurance, the sub-contractor cannot be compelled to do so.
In addressing the second part of the query, it is trite that, generally, any default or damages suffered by an employer that is attributable to a sub-contractor will be grounds for a claim against the main contractor by the employer. Of course, this would mean that the main contractor would then have a concomitant claim under the sub-contractor agreement, but that is another matter.
However, it does not automatically follow from this that the sub-contractor will necessarily be covered by the main contractor’s insurance. It is important to bear in mind that insurance is, at its very essence, an agreement between the insurer and the policy holder. Therefore, the conditions of cover that are set out within the insurance agreement and will vary from policy to policy. It may well be the case that sub-contracted works are excluded from this cover.
This reinforces the point that a sub-contractor should be absolutely clear as to what extent it is covered, whether under their own policy or a third-party policy, and over what period this cover is valid.
Given that most main contractors are typically appointed under one of the “Big Four” standard forms of contract, it is worth considering what these contracts have to say about insurance, insofar as it relates to sub-contractors.
It must be borne in mind that the discussions below are extremely generalized and that these agreements are subject to variation by the parties as well as various exceptions that may impact how they function in practice.
1. Joint Building Contracts Committee (JBCC)
Clause 10.1 of the 2014 Principal Building Agreement (PBA) requires that the main contractor shall take out Contract Works Insurance, for the duration of the contract. This cover will include all works “in the care, custody or control of the [main contractor] or to be worked on by the [main contractor].
Given that a domestic sub-contractor falls within the “care or control” of the main contractor, the main contractor’s insurance would be required to cover the sub-contractor. However, clause 10.10 explicitly excludes the requirement of providing cover for domestic sub-contractors.
Clause 10.3 of the associated JBCC Sub-Contractor Agreement requires the main contractor to provide proof to the sub-contractor, on demand, that the necessary insurances are in place that adequately cover the sub-contractor.
2. General Conditions of Contract (GCC)
Clause 8.6.3 of the GCC obligates the main contractor to ensure that the sub-contractor has effected the necessary insurances. While it is the main contractor’s duty to ensure compliance, it remains the sub-contractor’s responsibility to provide its own cover.
“Necessary insurance” under the GCC, as described by clause 8.6.1, must include All-Risk, SASRIA cover, public liability and (if applicable) lateral ground support cover.
3. Engineering and Construction Contracts (NEC)
Clause 84 requires the main contractor to provide cover for All-Risk, damage to property, public
liability and insurance for injury and/or death to the main contractor’s employees.
Clause 26 states that any works undertaken by a sub-contractor will be deemed to have been undertaken by the main contractor and that any employees of a sub-contractor will be deemed to be employees of the main contractor. Read with clause 84, this extends the main contractor’s obligation to provide insurance to cover the works undertaken by, and the employees of, the sub- contractor.
FIDIC
Clauses 18.2 to 18.4 require the main contractor to provide insurance for All-Risk, property, public liability and contractor’s personnel from the Commencement Date up to the issuing of the Taking- Over Certificate. This insurance must cover those areas of work that fall under the main contractor’s responsibility, which would typically include the entirety of the Works as defined by the contract.
Clause 4.4 states that the main contractor shall be responsible for the acts or defaults of the sub- contractor as if it were the act or defaults of the main contractor. Read with clause 18, this will extend the main contractor’s insurance obligation to cover that of the works undertaken by its sub- contractors.
To summarise the above discussions:
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There is no inherent obligation for a sub-contractor to provide insurance cover;
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A sub-contractor is not automatically covered by the main contractor’s insurance; and
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Any obligation that a sub-contractor would have to provide cover would be derived in terms of a sub-contractor’s agreement.
Andrew Seymour
Andrew Seymour is an admitted practicing attorney as well as a Professionally Registered civil engineer (B.Sc. Civ Eng) and with over 17 years' experience working in the Built-Environment Industry.
This article is intended for information purposes only and should not be taken as formal legal advice.
For more information, contact us on info@seymours.co.za or 074 125 1622 to arrange a consultation.
www.msattorneysinc.co.za
Andrew Seymour °
B. Sc Civ Eng, LLB, Pr. Eng, AAArb Practicing Attorney of the High Court of SA