Written by FCSA Business Partner, Caunce O’Hara & Co.
Readers will no doubt be familiar with the fact that contractors often have to acquire appropriate liability insurance to satisfy contract requirements. I’ll assume that you will be up to speed with the basics of public and employers’ liability insurance as well as professional indemnity insurance. These are the most common policies being asked for by end clients.
Currently, the main two preferred routes for contractors to take when embarking on a contract is to operate via a Personal Service Company (PSC) or via an umbrella company. In this article, I’ll look at often talked about, but misunderstood facts relating to insurance policies for contractors covering PSCs then umbrella companies, as follows:
PSC insurance
- There’s a strongly held belief that insurance policies are expensive. Whilst premiums are driven by a contractor’s occupation, duties and pay-rate it’s generally the case that premiums only cost around 1% of annual income.
- The vast majority of contracts that contractors enter into are written. It’s believed that if there is no written contract, simply a verbal one, then insurance won’t be needed. In law, however, a verbal contract is binding and if a problem or dispute arises an insurer will defend a contractor’s position as long as insurance is in place. That said, it is always preferable for a written contract to be in place to ensure parties are clear on contract terms.
- A good professional indemnity policy will provide defense costs should the actions of a contractor or the advice given by the contractor is challenged. Some policies only pay claims “ in the aggregate “ which means the contractor who has a policy with an indemnity limit of £1m can only have claims in a policy year up to that limit. An “any one claim “policy provides £1m indemnity for every claim in a policy year. Some professional indemnity policies do not provide cover for claims arising from historic work – retroactive cover included in a policy will ensure past work and advice is insured against claims brought from the day the contractor commenced in business i.e. formed their PSC.
- For those contractors who intend working in the US & Canada, special attention should be given to insurance requirements mentioned in contracts as many insurance policies have exclusions for contractors working in these territories.
- High on the priority list for many PSC contractors is to acquire Tax Enquiry & Legal Expenses insurance (TE & LEI) to ensure defense costs can be met in the event of HMRC enquiries and investigations. IR35 remains a concern as we know. It’s often not known that a good TE&LEI policy will insure other matters including contract disputes, employment disputes, and debt recovery advice to name but a few.
Contractor Insurance via an Umbrella Company
- Drivers, a vastly “in-demand” profession and popular with recruiters. Public Liability cover under an Umbrella insurance policy can be extended to cover damage to the end client’s vehicle whilst being driven by contractors of the Umbrella Company, this is known as a “Drivers Negligence” extension.
Plant operators also need consideration in exactly the same way as above.
- Medical Professionals, another popular industry. All Public Liability and Professional Indemnity policies carry a standard medical malpractice exclusion and the medical industry has many professions within it in addition to just doctors, dentists and nurses. Cover needs to be considered for the medical placements as whilst there is a belief that the Medical Defence Union are at hand which may not be the case for some of the Allied Health Professionals such as Physiotherapists, Occupational Therapists. We had a recent malpractice allegation against a Speech Therapist and even allegations need defending and generate costs.
- Recruitment and Umbrella companies need to consider Cyber and Crime policies as although this is not directly an insurance policy for the contractor, it does protect the Recruitment/Umbrella Company for loss of or breach of sensitive data that they hold for their contractors.
- In the vast amount of cases, insurance policies for Umbrella Companies and their contractors exclude work performed in US or Canada.
- Cover for any worker who works or even briefly visits offshore sites should be checked as again offshore work can be a common exclusion under Umbrella insurance policies.
- IT workers – a lot of these techy types contracting out there and unfortunately there are a lot of insurances that exclude damage by virus transmission EVEN if it is an accidental transmission. Additionally, this exclusion could apply to anyone and not just people in the IT sector.
At Caunce O’Hara, we have been providing specialist and bespoke insurance policies to the Freelance Contractor, Recruitment, and Umbrella sector for in excess of 20 years, and advise that we can offer solutions for all of the above points.
For more information, please contact Adrian Stewart at Caunce O’Hara Insurance Brokers on tel: 0161 833 5609.
