A subcontractor won a job to perform work for a builder and as part of the process, was asked to sign a “standard contract”.
What they didn’t realise, was that the contract contained a clause, which required the subcontractor to indemnify the builder for any liability arising in connection with the subcontract.
During the construction an accident occurred and two workers were injured. After claiming under Workers Compensation, WorkCover then sought to recover their costs from the builder, but the builder used the contract to insist that the subcontractor indemnify them.
Although the subcontractor maintained that this was unfair, the Court found that the contract was valid and was ordered to pay $700,000, plus the legal fees. The Liability Policy held by the subcontractor contained an exclusion (as do almost all policies) which excludes cover which is only assumed by agreement or contract…i.e. if the subcontractor hadn’t signed the indemnity, he would not have been legally liable for the injuries, so his insurer refused to pay.
Unfortunately, not only did the business fail, but the subcontractor lost his house too.
The point to take from this is that although contracts and insurance policies involve the transfer of risk from one party to another, don’t assume that if you accept increased risk, that the Insurer will pick up that increased risk. While some risks can be covered, some are uninsurable, so make sure you talk to us before signing any contract.