“Mining companies tend to be large multinational companies that have one standard contract for contractors regardless of the project or where it is being carried out.
According to Charmian Holmes, solicitor director of The Fold Legal, who told Insurance Business that over the last three years there has been an increase in SMEs who are exposed to uninsured liabilities and forced to close down to pay out.
SME contractors are closing down because they are footing the bill for liability claims, that unbeknownst to them, are not covered by their insurance policy.
Contractors are being asked to sign large and extensive commercial contracts with companies but aren’t always receiving advice from brokers as to whether their liability insurance covers the project. In many cases, businesses’ coverage is inadequate and they are forced to pay claims out of their own pockets, forcing them to wind down their businesses.
Holmes said this was particularly an issue in the mining industry because of the boom in Australia.
“There are SME contractors who are asked to sign large extensive commercial contracts but aren’t getting the right advice from their broker or a legal expert before signing so when there is a problem with the project, they find their insurance does not cover it and they are put out of business. They only realise this when a claim is made.”
It is an issue that is not restricted to mining. The Fold, which provides a free contract review service for Steadfast brokers and their clients, said it applies to SMEs that exchange a variety of goods and services with other companies.
“It could be an architect contracted to work on a building or a company taking out a lease on an office,” Holmes said.
She conceded that companies had to manage their own exposures but highlighted that too often SMEs were carrying a financial burden that was not theirs.The situation has been exacerbated by the global financial crisis, which made many companies keen to pursue claims that, in the past, they might have overlooked.
Holmes said the issue was not helped by the fact that insurance companies do not provide “blanket contractual liability insurance” but added insurers assess the risk on a case-by-case basis. In the first instance, she urged SMEs to show their broker the commercial contract.
“They will be able to assist you in managing your exposures or help you buy the right coverage. They, or a legal expert, might be able to help find ways to renegotiate your contract with the company so that the insurer might provide cover,” she added.