Understanding Liability Risks with Independent Contractors

Collaborating with independent contractors can bring flexibility and expertise to your business. However, understanding the liability risks involved is crucial. Many business owners mistakenly believe their General Liability (GL) policy provides full protection in such situations, but the truth is more nuanced. Without proper coverage, businesses may face unexpected liability issues if contractors don’t have their own insurance.

Your GL Policy Covers Your Business

Independent contractors are not employees, but their actions can still significantly impact your business. While a GL policy may cover lawsuits tied to a contractor's work, independent contractors are not automatically insured under the business’s policy. This distinction is vital for business owners to grasp in order to avoid potential legal and financial burdens.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

It's common for various industries to mandate that contractors carry their own general liability insurance. This ensures any claims from their work are covered by their policy, not by yours. This practice mitigates the business's risk significantly.

Ask for Proof of Insurance

Businesses are encouraged to request a certificate of insurance (COI) from contractors. Hiring contractors without verifying their insurance can introduce substantial risk to your business.

Be Named as an Additional Insured

Requiring contractors to add your business as an additional insured on their policy extends coverage and lowers risk. This step ensures that any insurance claims related to their work also cover your business.

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

An OCP policy, which contractors purchase but covers your business, provides primary liability protection. This means the policy steps in first to handle any liability claims.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance requirements and liability responsibilities in contracts is of utmost importance. For instance, a detailed contract can prevent disputes by specifying who is responsible for insurance in particular scenarios. Proper insurance coverage is essential when working with independent contractors. Without it, business owners could face significant liability for claims. It's crucial to verify insurance coverage and consider conducting a risk assessment of your current contractor policies to ensure adequate protection.