Not upheld: claim declined - policy exclusion for sub-contractor liability complaint against Convex Insurance UK Limited

Decision detail

Summary

A, a limited company, held business protection insurance with Convex. A sub-contracted installation works to G as part of a larger contract with E, but assumed contractual liability for G's actions. When a defect in G's work led to payment being withheld by E, A claimed on its insurance. Convex declined the claim based on a policy condition excluding liability for bona fide sub-contractors. A argued G was a labour-only sub-contractor and therefore not covered by the exclusion. The ombudsman found that despite A's characterisation, G was a bona fide sub-contractor based on evidence including separate liability insurance, independent equipment sourcing, lack of supervision, and independent work arrangements. The ombudsman upheld Convex's decision that the exclusion applied and that A's assumption of liability for G's actions increased the insurer's risk, making the claim decline fair and reasonable.

The Ombudsman's reasoning

The ombudsman applied the ordinary and normal meaning of 'bona fide sub-contractor' within the context of commercial insurance policies, distinguishing between formal sub-contractors and labour-only sub-contractors. Despite A's characterisation of G as labour-only based on the quote and invoices, the ombudsman found multiple indicators that G was a bona fide sub-contractor: G held separate liability insurance, equipment was hired after the defective installation (suggesting G sourced its own equipment), G was not supervised or directed by A, and G worked from drawings supplied by A without direction. The ombudsman found it reasonable for Convex to conclude that Mr H, as contracts manager, would understand the term 'bona fide sub-contractor' and the distinction it carries in the construction industry. The ombudsman further found that the second part of the condition (the 'increased risk' clause) was satisfied because A's assumption of liability for G's actions manifestly increased the insurer's risk by making A liable for actions of parties not under A's direct control.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website