Understanding Liability Risks with Independent Contractors

Working with independent contractors can be a double-edged sword when it comes to liability risks. While many business owners believe their General Liability (GL) policy offers comprehensive protection, the truth is more nuanced. Without proper coverage, the actions of a contractor could expose your business to significant liability. Therefore, it's critical to understand the risks when contractors don't have their own insurance.

Your GL Policy Covers Your Business

Independent contractors are not like regular employees, but their activities can still significantly impact your business. Generally, while a GL policy may cover some lawsuits involving the contractor’s work, independent contractors are not automatically insured under your business's policy. This distinction can impact your coverage in the event of a claim related to a contractor's actions.

Insurance Solutions to Reduce Your Risk

Requiring contractors to secure their own GL insurance is a common industry practice. This approach ensures that claims arising from their work are covered by their own policy, not yours. It's a safeguard that protects your business from unexpected liability issues. Additionally, ask contractors for a certificate of insurance (COI) as proof of their coverage. Verification prevents the hiring of uninsured contractors and shields your business from the associated risks. Consider requiring that your business be named as an additional insured on the contractor's policy. This measure extends coverage to your business, further mitigating risks associated with the contractor’s work. Furthermore, an Owner’s and Contractor’s Protective (OCP) policy could be beneficial. Purchased by the contractor but covering your business, an OCP policy provides primary liability protection, adding an extra layer of security for your operations. Establishing comprehensive contracts is crucial. Clearly outline insurance requirements and liability responsibilities within the contract to avoid disputes. This clarity ensures both parties understand their obligations and can prevent costly misunderstandings. It's essential for business owners to evaluate their current contractor policies to ensure they're adequately managing risk. Proper insurance coverage is crucial when hiring independent contractors, and failing to verify insurance may leave your business vulnerable to claims it shouldn’t be responsible for. Take action today by assessing your risk management strategies and enhancing your current policies for working with independent contractors.