Why Subcontractors Need Public Liability Insurance That Covers Contractual Liability
The Hidden Risk Inside Construction Contracts With Tier 1 Builders
In the construction industry, subcontractors regularly enter into agreements with Tier 1 builders and large commercial contractors. These contracts often include complex clauses that shift significant liability onto smaller subcontractors, even when they are not at fault.
For civil contractors, plumbers, builders, and trades signing into these agreements, the wrong insurance setup can leave your business dangerously exposed.
In this blog, we break down why Public Liability Insurance with Contractual Liability cover is essential and how it protects you when your contract places responsibility on you for incidents outside your control.
The Problem: Contracts Often Shift Liability Onto Subcontractors
It’s a common industry practice: Tier 1 builders insert clauses that make subcontractors responsible for all incidents on site, including those not caused by them.
Real Example:
A civil construction subcontractor signs a contract with a Tier 1 builder for a major commercial project.
Buried within the contract are onerous terms stating that the subcontractor is liable for any injuries that occur on the work site, regardless of who is at fault.
During the project, a site visitor is injured in an unforeseen accident.
The subcontractor followed every safety protocol.
They weren’t involved, weren’t supervising the area, and didn’t cause the incident.
But the contract says they are liable, so they are.
Without the correct insurance, the subcontractor could be forced to pay for:
- Medical costs
- Legal defence fees
- Compensation payouts
- Ongoing litigation expenses
These costs easily reach tens or hundreds of thousands of dollars.
Why Public Liability Insurance Matters
Public Liability Insurance protects subcontractors when their work causes accidental injury, property damage, or financial loss to others.
Learn more:
👉 Public Liability Insurance
But here’s the critical detail many subcontractors miss:
Most Public Liability policies do NOT automatically cover contractual liability.
If your contract says you’re responsible for incidents beyond your normal legal liability, your policy may refuse the claim unless you’ve disclosed and insured those obligations.
Contractual Liability Cover: Your Safety Net
A Public Liability policy with Contractual Liability extensions can protect you when:
- The contract transfers additional liability to you
- You sign indemnity clauses
- You agree to “hold harmless” the head contractor
- You become responsible for incidents you didn’t directly cause
- You must pay legal fees for claims you weren’t at fault for
Without this extension, your insurer may decline the claim, leaving you personally exposed.
Who Needs Contractual Liability Cover?
This applies to any trade that signs into construction contracts, including:
Civil Construction Contractors
High-risk environments, heavy machinery, and multi-contractor sites make liability exposure significant for civil contractors. When creating your civil construction insurance package, contractual liability should be considered.
Builders & Construction Companies
Many builder agreements include indemnities and unreasonable liability assumptions.
Plumbers & Trades Completing Contract Work
Subcontractors working under builders are often required to accept broad liability obligations.
Demolition & Excavation Contractors
High-risk worksites often contain strict insurance and liability requirements.
Why Contract Review Is Critical Before Signing
Before signing any construction contract, subcontractors should:
- Have the contract reviewed (preferably by a solicitor or broker).
- Identify any indemnity clauses or “hold harmless” wording.
- Ensure your Public Liability Insurance policy matches the contract requirements.
- Confirm you have Contractual Liability cover where needed.
This proactive approach reduces the risk of claim rejections and unexpected liability.
Final Thoughts
Construction contracts with Tier 1 builders often shift significant liability onto subcontractors, even when they’re not at fault. This makes Public Liability Insurance with Contractual Liability coverage absolutely essential for civil construction workers, plumbers, builders, and trades.
The right policy can protect your business from devastating financial losses and ensure your contract obligations are fully covered.
Need to Review Your Policy or Contract?
Morgan Insurance Brokers specialises in construction insurance and can help you ensure your coverage aligns with your contractual obligations.
