Why Being Named on the Policy Might Not Protect You
TL;DR:
A waiver of subrogation is the clause that stops an insurer recovering from you after it has paid someone else’s claim. Without one, being included on the main contractor’s policy answers only half the question. You may be insured under that policy and still receive a letter of demand from the same insurer months later, because “am I covered” and “can this insurer recover from me” are two separate questions decided by two different parts of the wording. It is one of the main reasons subcontracts still require your own cover even when you are nam
Consider a scenario. Fourteen months after you left site, a letter arrives from an attorney acting for an insurer. It concerns the fire. The insurer settled the employer’s claim, it says, and it is now recovering from the party whose negligence caused it, which is your firm.
You were on that policy. You have the certificate. And yet here is the letter.
This is subrogation, and a waiver of subrogation is the clause that would have stopped it. It is easy to miss, and in practice it often is.
elated reading: subcontractor insurance, what the cover looks like and who carries what.
What subrogation actually is
When an insurer pays a claim, it can step into the shoes of the party it paid and pursue whoever caused the loss. The insured is made whole, and the insurer chases recovery. Every insurer does it, and it is normal practice rather than bad faith, because it puts the cost of a loss with the party who caused it.
The problem is not that subrogation exists. The problem is that subcontractors assume being on the schedule switches it off.
Two questions, not one
Being included on a Contractors All Risk policy answers one question. There are two.
Question one: am I insured under this policy? Answered by the schedule. Your firm is named, or described as part of a class, or it is not.
Question two: can this insurer recover from me if I cause a loss? Answered somewhere else entirely, and often not answered at all.
A site agent saying “you’re covered” is answering question one, usually sincerely. Question two is the one that produces the letter.
Where being a co-insured does help
Insurance practice in South Africa generally proceeds on the basis that an insurer does not subrogate against its own insured in respect of the same loss and the same insured interest. Recovering from your own policyholder what you have just paid them defeats the purpose of the cover. So being a genuine co-insured for the works, for that loss, can give real protection, which is exactly why putting your name on the CAR policy matters more than it sounds.
Where it stops helping is in the detail:
- You were described as a class, not named. “And subcontractors” may or may not extend the same protection to your firm as a named insured would.
- You are insured for a narrower interest. A policy may cover you for the works while the liability section names only the main contractor.
- The loss falls outside your covered interest. Damage to a neighbour’s building is not damage to the works.
- Cover had already expired. Remedial work in the defects period is frequently on the wrong side of that line.
Which is why the express clause matters more than the general principle.
Three clauses people mix up
These do different jobs, and having one does not give you the others.
Joint names. Both the employer and the main contractor, sometimes with subcontractors, are insured under one policy. It says who is insured. It does not say for what interest, and it does not by itself deal with recovery between them.
Cross liability, sometimes called a principals clause. These clauses typically operate as though each insured held a separate policy, so one insured party can claim against another. Useful, and often confused with a waiver.
Waiver of subrogation. The insurer gives up its right of recovery against specified parties. This is the one that answers question two, and it is the one most easily overlooked.
A schedule can carry joint names and a cross liability clause and still leave the insurer free to come after you.
Why your subcontract demands your own cover anyway
This is the piece that suddenly makes sense once you see the recovery risk.
Main contractors and their advisors know an insurer may look for recovery from a negligent subcontractor. Requiring you to hold your own liability cover means that when the letter arrives, there is a policy behind you rather than a small company’s balance sheet. That clause is not paperwork for its own sake, it is the main contractor making sure the recovery risk has somewhere to land.
Related reading: strict liabilities, who is responsible and what is not covered by a Contractors All Risk policy.
What confirmation that answers both questions looks like
“You’re covered” is not evidence of anything. Confirmation that answers both questions names:
- Whether your firm is named or described as part of a class
- Which sections you are insured under, works and liability being different things
- Whether there is an express waiver of subrogation, and which parties it names
- Whether there is a cross liability clause
- The policy period, including any maintenance or defects extension
- The excess, and who carries it under the subcontract
A main contractor with the cover properly arranged can put that in an email.
Want someone to read the schedule for the recovery risk?
CivilSure reads construction policy schedules for a living, and the recovery position is one of the first things we look for. CivilSure is an insurance broker. Send us what the main contractor gave you, together with the subcontract, and we will take you through what the wording actually says, where the gaps are, and what to ask the main contractor for.
– Dan Payton
Frequently asked questions
Who actually pays out on a subcontractor performance guarantee?
The company named as the guarantor on the document, which is not always the company whose name sits at the top of the page. It may be a bank, a non-life insurer, or a business registered with the National Credit Regulator, and each of those is regulated differently. The name on the letterhead is sometimes an underwriting manager running the cover for an insurer rather than the insurer itself, so the entity actually liable to pay is worth identifying before the guarantee is accepted.
What is the difference between a bank guarantee, an insurance guarantee and a credit-provider guarantee?
A bank guarantee is backed by a registered bank. An insurance guarantee is backed by a non-life insurer licensed under the Insurance Act, and that licence has to cover guarantees, which are their own licence class. A credit-provider guarantee comes from a business registered with the National Credit Regulator, a registration that authorises credit business rather than insurance.
All three can be perfectly sound. They carry different regulation, different security behind the promise, and different rules about when payment is triggered.
Is a guarantee from an NCR-registered credit provider valid?
Not automatically, and not automatically invalid either. In March 2026 the Gauteng High Court found that one issuer's construction guarantees were in substance insurance policies, and that issuing them without an insurance licence was unlawful. That issuer applied for leave to appeal in April 2026. While that application is pending the order does not operate, so the position is not settled law.
What decides any individual case is the instrument itself and the licence held by the company that issued it, not the registration number printed at the bottom.
What does "on demand" mean on a performance guarantee?
It means the issuer pays when a proper demand is made, without investigating whether the subcontractor actually defaulted. The Supreme Court of Appeal confirmed that position in May 2025, holding that a guarantor cannot go behind the guarantee into the underlying contract dispute. Proven fraud is the only exception the courts have recognised.
A heading that says on demand does not settle it on its own. The clause underneath may still require proof of default first, so the wording is what governs.
The guarantee says it is insurance-backed. Is that the same as an insurer standing behind it?
Not necessarily. "Insurance-backed" is a description rather than a legal status. The question that matters is which licensed entity is named as making the promise to pay, and whether that entity holds a licence that covers guarantees.
Can a main contractor reject a subcontractor's performance guarantee?
That depends on the subcontract. Many subcontracts specify the form of security and who may issue it, and a guarantee falling outside that specification is commonly rejected on that basis. Whether it can be rejected in any particular case is a contractual question rather than an insurance one, so an attorney is the right person to ask about your own agreement.
When is the best time to check a performance guarantee?
Before the subcontract is signed, while asking for a different instrument is still an option. Once the subcontractor has failed, the guarantee is whatever it already says, and the terms are no longer negotiable.
Does CivilSure charge to review a guarantee?
No. The review is free of charge and open to any guarantee sent in. There is no obligation and you do not have to be a CivilSure client. We read the wording and set out which company issued it, what licence that company holds, and what the document requires before it pays.
It is a review of the wording. It is not a legal opinion on whether the guarantee would hold up in court, and not a promise that any future claim will be paid.
Sources
- CivilSure, subcontractor insurance, on insurers commonly retaining rights of subrogation
- CivilSure, CAR policy, should you put your name on it?
Policy wordings differ between insurers and between projects. Whether a specific policy permits recovery against a specific subcontractor is determined by that schedule and wording. This article is general information on how construction policies are commonly structured, and not legal advice on any specific policy or contract.