What Is An Indemnity To Principal Requirement And Does Tradesman Insurance Provide It?
Caeva O'Callaghan | July 12th, 2023
Insurance terms can be confusing. When it comes to “principals” and “indemnity”, you need to know where you stand – read on to learn more about this important part of your policy.
An indemnity to principal requirement means that if a claim is paid, the beneficiary must be the person who hired the tradesmen to do the work, and not the tradesmen. It is a standard part of all tradesman liability insurance policies.
Even though the insurance policy has been taken out by the building contractor, any money from a successful claim will be given to the person who made the claim.
In this article, we’ll cover the following questions:
- What is an indemnity to principal requirement?
- How does an indemnity to principal requirement work?
- Does my tradesmans’ insurance provide it as standard?
Having such cover in place means the members of the public you serve are protected against harm or damage resulting from your work as a contractor.
What is an indemnity to principal requirement?
Indemnity to principles is a section which is usually found in insurance cover for contractors, builders and other tradesmen. Despite it being part of most policies in this market, it’s often not fully understood. This is why it’s vital to know what you’re buying before you pay for insurance.
An indemnity to principal requirement protects what’s known as the “principal” – who is usually the end customer – or else the principal contractor. It does this by outlining that if a claim is paid, the beneficiary of the policy will not necessarily be the policyholder but instead the third party who has suffered the damage or injury.
In essence, if something goes wrong, the insurance will pay out to the hurt party instead of the policyholder. With this clause, the policyholder is essentially buying protection.
Many contractors wrongly assume this cover will come under their professional indemnity policy – but this is not the case. Professional indemnity only provides cover if you have been negligent in design, advice or specification of work: in other words, it protects what you say, not what you do.
How does an indemnity to principal requirement work?
When you are a contractor in possession of a policy which contains an indemnity to principal section, you just need to tell your insurance whenever you are sued for damages. Your provider will take matters into their own hands.
Because the claim will be paid directly to the injured party, you don’t need to worry about transferring money or being involved any more than you need to be.
For example, let’s say a company called ABC Contractors has a combined liability policy to cover a project for Louth County Council. But during the course of the work, a member of the public trips on an uneven section of pavement, resulting in a badly grazed knee and knock on the head which means they have to miss work.
That member of the public would make a claim against Louth County Council and ABC Contractors. Thanks to the combined liability policy of the contractor all parties are covered – including Louth County Council – under the indemnity to principal clause.
Does my tradesman insurance provide it as standard?
While indemnity to principal is an essential section to have in your policy, it may not be included. To know for sure, you’ll have to check your policy documents thoroughly.
The standard indemnity to principal clause found on most liability policies may not always be sufficient to protect you and your business against a claim.
For example, say you have been employed by a tenant in a building to carry out a kitchen renovation on the premises. In this case the principal is the tenant: but what about the actual owner of the property? In the event of a claim, who is paid?
This is why it’s important to get a specific indemnity to the property owner on your contractors’ insurance, to prevent any extra hassle. If you’re confused about what this all means for you, give us a call: certain types of occupations may be required to have an insurance policy that offers indemnity to principals, but confusing this with the general principle of indemnity could result in insufficient cover.
All Information in this post is accurate as of the date of publishing.