Many tradies believe that if they purchase public liability insurance, they will automatically be properly protected if something goes wrong on the job.

There may be a few exceptions, such as having your tools stolen or injuring yourself, which would be covered by tool insurance and income protection, respectively, as most people are aware. But, surely, your public liability insurance always covers damage or injury to third parties?

Regrettably, no…

When people (including insurance brokers) discuss public liability, they frequently use phrases like the following:

“It covers you for any harm you inadvertently cause to other people’s property.”

“It covers you for any injuries you inadvertently cause to other people.”

Both those statements are correct… however, there is a fundamental phrase missing at the end of both:

As a result of your carelessness

Or

As a result of your negligence

So, yes, your public liability insurance covers you for third-party property damage or personal harm, but only if you are careless.

What exactly do we mean when we say “negligent”? Basically, it suggests you (or your employees) were at fault.

You may believe that this is acceptable because if you were not at fault, it isn’t your concern, right?

Not if you’ve signed a contract that delegated authority…

Examine your contracts!

When dealing with large construction organizations or contractors, you’ll typically discover that they delegate duty whenever possible.

As a result, the principal contractor may delegate responsibility to the contractor, who then delegates obligation to the subcontractor via the contract, which you’re asked to sign.

In this situation, the subcontractor is held fully responsible for all occurrences, even if they were not at fault.

Let’s look at an example: You’ve agreed to work as a subcontractor on some plumbing work. The fixtures and fittings that you were going to install were destroyed in a fire that was no fault of your own. The units were worth $60,000.

Despite the fact that you were not at fault, the contract holds you financially liable for the loss. Because you were not negligent, your public liability insurance will not cover the cost.

This is a terrible scenario to find yourself in, but it may happen, which is why it’s critical to understand the contracts you’re signing and the duties that are being passed on to you through them.

Understanding Contractual Responsibility

In certain circumstances, your public liability insurance will not cover you because you are liable owing to contracts rather than carelessness or negligence.

However, contractual liability insurance is a form of insurance that can help.

Contractual liability insurance for a subbie works in almost the exact opposite way as public liability insurance. Where you have been negligent, public liability insurance will cover you. Contractual liability does not cover you if you are negligent, but it does cover you if you are held liable under a contract.

If you’re signing contracts with large builders and contractors, there’s a considerable chance that duty will be passed on to you, so check to make sure you’re adequately insured.

If you have contractual liability insurance, you can be confident that you will be taken care of if you are held liable for someone else’s loss as a result of a contract.

There are a few exceptions to the rules. You won’t be covered for penalties under a contract, for example, but this is true of any insurance coverage.

Do I require both public and contractual liability?

Because the two types of insurance cover distinct risks, you may require both depending on the contracts you sign.

But keep in mind that a public liability policy will never cover what a contractual liability policy will cover, and vice versa!

We advise speaking with an insurance broker before engaging in contracts, but here’s a general rule: A public liability policy will benefit all self-employed tradies (including subbies), regardless of whether or not they sign contracts.

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You may also stand to benefit from obtaining a contractual liability policy if you engage in contracts, particularly with construction businesses.