Principal Supplied Materials


A commercial electrician who held an annual construction policy covering both material damage and public liability with a limit of $200,000 any one contract, based on an annual turnover of $1,000,000 per year.  The electrician was contracted to install two substantial transformers supplied by the principal.

The contract value was within the policy limit of $200,000.

The policy had an automatic 10% (of contract value) limit for principal supplied materials (so a maximum limit of $20,000 would apply).

What Happened

During the installation work on site, both transformers were totally destroyed in a catastrophic flood.  The value of each transformer supplied by the principal was $1,000,000!


The $20,000 limit for principal supplied materials under the annual policy was totally inadequate to cover the value of the transformers. Also the policy was one of average which compounded the under insurance factor even further.

The (standard) contract made the contractor liable for the replacement value of the transformers.
The client did not inform the broker of the value of the transformers, nor of their obligation under contract.

For the Broker

Ensure your client knows what the maximum policy limit is and advise them to always:

  • Discern the value of principal supplied materials for each contract
  • Check their contract conditions for their obligations
  • Keep their broker fully informed of values that exceed the policy limits

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