For Civil Contractors and Engineers in NSW, the greatest risk to your balance sheet often isn’t a physical defect or a site accident—it’s a paragraph in the contract you signed before the project even broke ground.

We see it constantly: a sophisticated civil firm wins a major tender with a Tier 1 builder or government body. They have a $20M Public Liability policy and a $5M Professional Indemnity policy. They assume they are covered.

But they haven’t accounted for Contractual Liability—the gap between what the law says you are liable for, and what you have agreed to be liable for.

This gap is the single most dangerous “blind spot” in construction insurance. If you fall into it, your insurer can legally decline your claim, leaving you to pay millions out of pocket.

The “Assumed Liability” Exclusion

Virtually every standard Public Liability (PL) and Professional Indemnity (PI) policy in Australia contains a Contractual Liability Exclusion.

In simple terms, this clause states: We will cover you for liabilities you would have had under common law (negligence). We will NOT cover you for extra liabilities you voluntarily assumed under a contract.

The problem? Most modern construction contracts—especially AS 4000 series or bespoke Tier 1 subcontracts—are designed specifically to make you assume extra liability.

Trap 1: The “Hold Harmless” & Indemnity Clause

You have likely seen clauses that require you to “indemnify and hold harmless the Principal against all claims, losses, and damages arising out of the performance of the works.”

The Blind Spot:

Under common law, if you are 80% at fault for an accident and the Principal is 20% at fault (perhaps they provided unsafe site access), you pay 80%.

However, the “Hold Harmless” clause often forces you to pay 100% of the claim, regardless of the Principal’s negligence.

The Result:

Your insurer will pay the 80% you owe at law. They will decline the 20% you voluntarily assumed via the contract. You are personally liable for the difference.

Trap 2: Contracting Out of Proportionate Liability (NSW)

In New South Wales, the Civil Liability Act establishes “Proportionate Liability.” This protects you from being made to pay for the mistakes of others (e.g., other subcontractors, consultants, or the Principal).

However, many commercial contracts include a clause that expressly “contracts out” of Proportionate Liability legislation.

The Blind Spot:

By signing this, you agree to be “jointly and severally” liable. If a building fails due to a mix of your earthworks, the structural engineer’s design, and the concrete supplier’s mix, the Principal can sue you for the entire $10M loss simply because you have the deepest pockets or are the easiest target.

The Result:

Your PI policy is priced and written based on Proportionate Liability. If you have contracted out of this protection without telling your insurer, you may have voided your cover for that project.

The Solution: Bridging the Gap

You cannot simply refuse to sign these contracts if you want to win work. Instead, you need to align your insurance with your contractual obligations.

1. Contract Reviews are Mandatory

Never sign a contract without a review of the Insurance & Indemnity clauses. At Southside Insurance Brokers, we can review these specific sections to highlight where your commercial obligations exceed your insurance coverage.

2. “Blanket Contractual Liability” Coverage

Standard policies are not enough. We can negotiate:

• Principals Indemnity Extensions: Extending your policy to cover the Principal where required.
• Blanket Contractual Liability: A specific endorsement that covers liability assumed under incidental contracts or specific designated contracts.
• Waiver of Subrogation: Ensuring your insurer cannot sue your Principal (which would breach your contract).

Expert Advice for Complex Risks

If you are a Civil Contractor or Engineer, relying on a standard “off-the-shelf” business pack is a gamble you will eventually lose. You need a broker who understands the intersection of Construction Law and Insurance statutes.

Contact Southside Insurance Brokers to discuss your current contracts and ensure your liability vs. indemnity gap is closed.

Telephone: (02) 9542 5151

Email: info@southsidebrokers.com.au