Principal’s indemnity
What it means
A principal’s indemnity extension treats the principal to a contract as though it were an insured under the contractor’s liability policy, but only for liability arising out of the contractor’s work.
It exists because a principal can be sued over something a contractor did on its site. Rather than relying on the contract’s indemnity clause and then chasing the contractor, the principal gets access to the contractor’s liability cover directly for that exposure.
Also called: principals indemnity, principal indemnity, principals extension
Where you meet it
- Construction and maintenance contracts, usually in the insurance clause alongside minimum limits and evidence requirements.
- Labour hire and site services agreements, where the host wants protection for the work performed on its premises.
- Government and tier-one contractor conditions, where the extension is often mandatory before site access.
Worked example
An electrical contractor works on a shopping centre. A member of the public is injured and sues both the centre owner and the contractor. The contractor’s policy carries a principal’s indemnity extension naming the owner.
The extension means the owner can look to the contractor’s liability policy for the claim against it, to the extent the claim arises from the contractor’s work. It does not cover the owner for anything else that happens at the centre, and it does not respond to the owner’s own negligence unconnected with the work.
What goes wrong with it
- The extension is limited to liability arising from the contractor’s work. A principal expecting broad cover for its own operations has misread it.
- The contractor and the principal share one limit. A large claim can erode the cover both of them are relying on.
- Some policies grant the extension automatically in the wording and some require it to be endorsed per contract. A certificate mentioning it is not the same as the wording granting it, so the schedule is the document to check.
- The extension does not replace the contract. A principal that relies on it and never checks whether the policy stayed in force for the whole job has swapped one exposure for another. That is why compliance registers track expiry dates instead of filing a certificate once and forgetting it.
Covers this clause appears in
- Public liability insurance — Cover for legal liability to third parties for personal injury or property damage arising from business activities.
Related clauses
Guides that use this
Sources
On any specific policy, the wording and the schedule govern — they are the primary source for what a clause means there. The references below are general guidance to check against, cited at the publisher level.
- Moneysmart (ASIC) — General guidance on business insurance from the regulator’s consumer site. A starting point, not a definition of this clause.