Subcontractors and Insurance: Avoiding the Grey Areas in Trade Work

‍Why “I thought they were covered” is one of the most misunderstood issues in trade businesses

Subcontractors play a vital role in the trades industry. They give businesses flexibility, help manage workloads, and allow larger or more complex projects to be delivered without increasing permanent staffing.

They also allow skilled tradespeople to operate independently and build their own businesses. For many readers, subcontracting is not just part of the system - it is the business model.

Because of this, subcontractor arrangements sit in a practical “grey zone” where expectations, insurance, and responsibility can sometimes be interpreted differently by different parties.

From our experience as insurance brokers, the majority of subcontractor-related disputes are not caused by wrongdoing or poor workmanship. They usually arise from unclear expectations about insurance, responsibility, and how risk is shared between parties.

The key issue is rarely what went wrong, but rather what was assumed beforehand.

‍Where misunderstandings can occur

In day-to-day trade work, it is common for arrangements to be made quickly and informally. This can lead to a few recurring misunderstandings:

• Assumptions that a subcontractor is automatically covered under a head contractor’s public liability policy 
• Subcontractors believing they are fully covered under another party’s insurance when they may still need their own cover 
• Insurance policies not being checked or updated to reflect the actual work being performed – This is a big one! 
• Absence of written agreements outlining scope, responsibilities, or expectations 
• Defects or issues emerging later, when responsibility is no longer clearly documented 
• A gap between who performed the work and who is legally responsible in a claim scenario 

It’s important to note that insurance is not designed to allocate fairness - it responds to legal liability and policy wording coverage. That distinction can sometimes lead to outcomes that differ from what either party expected at the time of the job.

Practical ways both contractors and subcontractors can reduce uncertainty

These steps help protect all parties involved - whether you are engaging subcontractors or working as one:

Confirm insurance arrangements early 

• Request and provide Certificates of Currency where relevant 
• Ensure policies reflect the actual type of work being performed 
• Check that the correct legal entity is insured 
• Review coverage limits to ensure they are appropriate for the job
  

Use clear, simple written agreements 

• Define scope of works clearly 
• Outline who is responsible for defects or rectification work 
• Set out insurance expectations for both parties 
• Clarify supervision and site responsibilities
  

Discuss expectations upfront 

• What happens if something goes wrong during or after a job? 
• Which insurance policies are intended to respond? 
• How are responsibilities shared or separated on site?
  

Keep basic records 

• Insurance certificates 
• Agreements or work orders 
• Job scopes and variations 
• Invoices linked to specific projects
  

Maintain ongoing checks, even in long-term relationships 

• Regular working relationships can naturally become informal 
• Periodic confirmation of insurance and scope helps maintain clarity over time 

‍Final thought

Insurance responds to legal and contractual reality, not informal understandings or assumptions made on site. 

The businesses that manage subcontractor relationships well - whether they are engaging subcontractors or performing the work themselves - are the ones that keep expectations clear, use simple written agreements, and maintain consistent communication throughout every job.

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[This article provides general information only and does not take into account your individual objectives, financial situation, or needs. You should consider whether this information is appropriate for you and seek advice from a qualified insurance broker before making any decisions. Policy terms, conditions and exclusions apply and can vary between insurers. Need advice tailored to your business – speak with an Informed Broker today.]

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