2. Welcome
The aim of this presentation is to provide you with a brief overview of Standard and Non Standard contracts from the
perspective of an insurance company.
Hopefully at the end of this presentation you will understand how the two types of contract are defined by an insurer
and how the differences affect your insurance covers.
If you have any questions, please contact me and I will be happy to help you.
Gary Chambers
Technical Director (Recruitment)
PIB Insurance Brokers
Telephone No. 0117 926 9937
Email gary.chambers@pib-insurance.com
3. Contractual Agreements Overview
The main focus of this presentation is to make you aware of the elements of a contractual agreement that your insurers
will be looking at when they ask you to break down your business activities into Standard and Non Standard terms.
The main clause in any contractual agreement of interest to an insurer will be the liability clause as it enables them to
work out the likelihood of a claim and possible claims costs.
Insurers will typically ask you if you use “contract terms as recommended by the Recruitment and Employment
Confederation.” Insurers are aware that these recommended contract terms use a liability clause which passes all
responsibility for any liabilities to the hirer.
In the event that a temporary worker is injured on the hirers site or causes damage or injury to something or someone,
the hirer’s Employers’ or Public Liability insurers will be responsible for settling the claim.
Likewise, should the temporary worker act negligently or make an error or omission while working at the hirers site, the
hirer’s Professional Indemnity insurers will be responsible for any financial loss caused to a third party.
4. Contractual Agreements Overview
If your business does not use REC recommended terms, then it is likely that you will need to send them a copy of your
Standard Terms of Business so that they can read the liability clause to make sure it contains a clause that will push the
responsibility for liability claims onto the hirer.
If your current Standard Terms of Business do not carry a liability clause that pushes all possible liability over to the hirer,
then it is recommended that you forward your terms of business to your legal advisor with a request that they assist
with adding an appropriate liability clause.
Unfortunately your insurance adviser will not be able to help you with the wording of your liability clause, or pass
comment on the rigidity of the clause. Insurance advisers are not qualified or insured for providing legal advice.
When your insurer is confident that your Standard Terms of Business push all possible liability onto the hirer, they can
afford to charge lower premiums for this element of your business insurance, as they are in a strong position should a
claim arise.
5. Contractual Agreements Overview
If your business signs hirers contractual agreements, your insurer will not be able to assess how onerous the contract
wording is or predict possible claims costs.
Each Non Standard contract a recruiter signs can vary massively and typically pushes all the responsibility for liability
claims back to the recruiters insurers, so the insurers charges slightly higher premiums for these contracts.
Most established recruitment insurance schemes automatically include the liability you accept when signing a Non
Standard contract as long as you have declared to them that you supply temporary workers under these contracts.
When you complete you insurance proposal form at the outset, or your renewal declaration, the insurer will ask you to
split your wageroll paid to temporary staff and turnover earned into the two categories of Standard Contract Terms and
Non Standard Contract terms.
As long as you have declared Non Standard Contract amounts for wageroll and turnover, then your policy should
automatically cover you. I would always recommend you check this with your insurance provider before assuming that
you current policy works in this way.
6. Contractual Liability Cover
If your current insurance policy provides cover for the Non Standard contracts, there will be a Contractual Liability clause
in the policy wording under the Employers’ and Public Liability sections.
The wording of the Contractual Liability clause will say something like this;
*Contractual Liability
We will pay the amount of damages and claims costs for which you are liable by law under a contract or agreement for the provision of temporary workers.
We will not cover claims
1. where the terms of any contract or agreement made by you, prevent us from taking over the full defence or settlement of the claim
2. to pay liquidated damages, or any contractual fines or amounts payable under contractual penalty clauses.
The above policy wording clause simply states that insurers will cover any Non Standard contracts that your business
signs, with the exception of any circumstance where the Non Standard contract does not allow your insurers to manage
the claims process, or if you have signed any financial guarantee for work or penalty payment amounts.
7. Contractual Liability Cover
It is also very likely that you will see a “Supervision, Direction and Control” exclusion within you policy wording;
*Supervision Direction or Control
We will not cover legal liability arising out of your responsible for any supervision, direction or control of any temporary worker or group of temporary workers placed out under a
contract or assignment.
This exclusion restricts contractual liability, but only if the recruitment agency undertakes MSA (Master Service
Agreement), where the recruitment agency is responsible for running an entire operation at a hirers location.
The insurer would require you to notify them if you are carrying out any MSAs as the potential for liability claims is
greatly increased if you are overseeing and coordinating the temporary workers on a hirers site.
If your contractual liability clause says something like “Contractual Liability is cover to the extent that cover would have
been provided in the absence of such a contract” your cover is very limited. This basically means that not everything you
sign up to in the Non Standard contract liability clause will be covered, only the bits that would have been covered by
your insurance if you had never signed the contract.
8. Non Standard Contract Clauses
Things to watch out for
If you have established that your policy wording does provide you with the contractual liability cover that your business
needs, you still have be to aware of the following phrases in a Non Standard contract;
Waiver of Subrogation
Your insurer relies upon their right of subrogation to act on your behalf to recover claims payments from a third party
that is responsible for the a. Removing your insurers right to do this means that your business could end up paying out
all claims without any ability to recover funds from the party responsible.
If you like, it is like giving the hirer a blank cheque book and giving them the authority to settle any claims even if the
hirer is the party responsible for the claim.
I do see some recruitment insurance schemes that advertise that they include waiver of subrogation automatically.
When I see this I am concerned that they are either misreading the policy wording or worse, they are happy for a
recruiter to sign away this right and potential ruin their claims experience.
9. Non Standard Contract Clauses
Things to watch out for (continued)
The word “Indirectly”
In some Non Standard contracts, the liability clause will state that you will have to pay a claim if you are “Directly or
indirectly responsible or the loss”.
To my knowledge, there is no legal definition of in terms of boundaries for the word “indirectly”, and as such, this could
mean that you will pay claims for any incident whether you are involved in the chain of events or not.
You should only ever accept responsibility for situations where there is a direct link to an action your business has taken.
Again, if you have the wide Contractual Liability cover under your liability insurance, you will have cover for the Non
Standard contract liability clause you are signing.
Accepting responsibility for claims that are not your responsibility will seriously damage your insurance claims record.
10. Vicarious Liability Cover
Non Standard Contracts and Vicarious Liability
It is important to remember the following when reading this section;
Contractual Liability – This relates to the Employers & Public Liability sections of cover
Vicarious Liability – Relates to the Professional Indemnity section of cover
Professional Indemnity insurance provides the recruitment agency with protection for financial losses they cause to a
third party for any negligent acts, error or omissions they cause whilst they carry out their activities as a recruitment
business.
Adding Vicarious Liability cover to professional indemnity insurance extends the cover so that a recruiter is covering any
negligent acts, errors or omissions made by a temporary worker whilst they are carrying out their activities at the hirers
site.
You will only be required to cover the negligent acts, errors and omissions of the temporary worker if you have signed a
Non Standard contract that states that you are required to provide this cover.
11. Vicarious Liability Cover
Non Standard Contracts and Vicarious Liability (continued)
I have not seen to many Non Standard contracts that actually makes the recruitment agency responsible for the
negligent acts, error or omissions of the temporary worker, so it is worthwhile checking any Non Standard contracts to
see if you are required to take this additional cover out.
The idea of including Vicarious Liability was created by one of the recruitment insurance schemes about 8 years ago in
an effort to provide wider cover for their clients. It isn’t needed by the majority of recruiters, but if you are signing Non
Standard contracts you are probably safer including the cover.
There are different types of cover available – beware!
If you have contractual obligations that mean your business requires Vicarious Liability cover, make sure you are getting
the right version as there are a number insurance providers that offer a very narrow cover.
12. Vicarious Liability Cover
Non Standard Contracts and Vicarious Liability (continued)
If you need to arrange cover for Vicarious Liability cover, the clause should look something like this;
Vicarious liability of temporary workers
We will pay for any claim and defence costs relating to your legal liability under contract for errors and omissions made by a temporary worker provided by you.
We will not cover claims
1. where you are responsible for the direction and/or supervision and/or control of the temporary worker under the terms of the contract.
2. where the terms of any contract or agreement made by you, prevent us from taking over the full defence or settlement of the claim.
3. to pay liquidated damages, or any contractual fines or amounts payable under contractual penalty clauses.
The above clause covers your legal liabilities which you have agreed to under a Non Standard contract, but excludes any
claims that result from you managing the temporary workers on site. Your insurer must maintain control of the claims
process and you will not be covered for any financial guarantees or fines/penalties you agreed to.
If you ever see a clause for Vicarious Liability that says that cover is provided “only in the event that the recruitment
business has made the first error”, I would avoid it. If your business makes the initial error, then you should be covered
under the standard professional indemnity cover anyway.
13. Thank You
I hope you have found this information useful, but if you have questions or
would like your current insurance reviewed, please contact me and I will
be happy to help you.
Gary Chambers
Technical Director (Recruitment)
PIB Insurance Brokers
Telephone No. 0117 926 9937
Email gary.chambers@pib-insurance.com
