Understanding Liability Risks with Independent Contractors

When working with independent contractors, understanding liability risks is crucial. Many business owners mistakenly assume their General Liability (GL) policy offers full protection. However, the reality is more nuanced, and failing to properly address these risks can result in significant financial consequences if independent contractors do not have their own coverage.

Your GL Policy Covers Your Business

Independent contractors, while not employees, can significantly impact a business with their actions. Generally, a GL policy may cover lawsuits arising from the contractor's work. However, it does not automatically include these contractors under the business's policy. Thus, while your business is protected, relying solely on this coverage without ensuring contractors are independently insured might still leave gaps in liability protection.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

A common practice across various industries is requiring contractors to carry their own General Liability insurance. This ensures that claims arising from their work fall under their policy, not the business's, thereby reducing risk for the business itself.

Ask for Proof of Insurance

Always request a Certificate of Insurance (COI) from your contractors. This confirms their policy and coverage specifics, helping avoid the potential pitfalls of hiring contractors without verified insurance.

Be Named as an Additional Insured

Requiring contractors to list your business as an additional insured on their policy can extend coverage and mitigate risks further. This status gives the business some protection directly from the contractor’s policy.

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

An OCP policy, which is purchased by the contractor but covers the business, provides primary liability protection. This type of policy can offer a direct layer of protection specifically for contractor-related liabilities.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outline insurance requirements and liability responsibilities in your contracts. A well-drafted contract can prevent disputes by laying out explicit terms. This is an effective tool to avoid misunderstandings about insurance coverage.

Proper insurance coverage is critical when hiring independent contractors. Failing to verify insurance can leave businesses liable for claims. Business owners should conduct a risk assessment of current contractor policies to ensure they are adequately protected.