Understanding Liability Risks with Independent Contractors

Using independent contractors can offer businesses flexibility and expertise without the long-term commitment of hiring full-time employees. However, it's crucial for business owners to understand the liability risks associated with this approach. Many assume their General Liability (GL) policy provides full protection, but the reality is more nuanced. Without proper coverage, you could face financial exposure if contractors don’t carry their own insurance.

Your GL Policy Covers Your Business

Independent contractors are not employees, but their actions can still significantly impact a business. While a GL policy may cover lawsuits involving the contractor’s work, independent contractors are not automatically insured under the business’s policy. This distinction is important because if something goes wrong, your policy might not protect you against claims arising from their work.

Insurance Solutions to Reduce Your Risk

Hiring contractors who lack proper insurance can expose your business to unnecessary risk. Here's how to safeguard against such scenarios:

Require Contractors to Have Their Own GL Insurance

Many industries mandate that independent contractors carry their own insurance policy. This ensures that any claims directly related to the contractor's work are handled by their insurance, not yours. Making this a requirement protects your company and provides peace of mind.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) from contractors to verify their insurance coverage. Hiring without verifying their coverage can leave your business vulnerable if an incident occurs. Protect your interests by confirming this step in your hiring process.

Be Named as an Additional Insured

Requiring that your business be listed as an additional insured on a contractor’s policy extends coverage and mitigates risk. This inclusion means your company receives protections under their insurance policy. It’s a simple request that adds an extra layer of security.

Consider an Owner’s and Contractor’s Protective (OCP) Policy

An Owner’s and Contractor’s Protective (OCP) policy is purchased by the contractor but specifically covers the business. It provides primary liability protection, allowing you to face fewer risks and enjoy greater peace of mind when working with independent contractors.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

A clear contract outlining all insurance requirements and liabilities is crucial. This document should explicitly state who is responsible for what. For example, a contract that specifies the contractor must maintain insurance coverage can prevent disputes and ensure all parties are informed of their obligations.

Reinforce the Importance of Proper Insurance Coverage

Proper insurance coverage is vital when hiring independent contractors to avoid unexpected financial burdens. Business owners must remember that failing to verify insurance can leave them responsible for claims. Taking action, such as a risk assessment of your current contractor policies, could save you from potential pitfalls down the line.