Understanding Liability Risks with Independent Contractors

In today's dynamic business environment, understanding liability risks is crucial, especially when working with independent contractors. Many business owners mistakenly assume their General Liability (GL) insurance offers blanket protection against all risks, but the reality is more complex. If contractors lack coverage, the risks to your business can be significant.

Your GL Policy Covers Your Business

Independent contractors aren't employees, yet their actions can significantly impact your business. While a GL policy might cover lawsuits involving the contractor’s work, independent contractors are typically not automatically insured under your business policy. This distinction is important to remember when engaging with 1099 workers.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Requiring contractors to maintain their own GL insurance is essential in many industries. This practice ensures claims from their work fall under their policy, not yours.

Ask for Proof of Insurance

Verify contractor coverage by requesting a certificate of insurance (COI). Hiring contractors without verifying their insurance is risky and could leave your business vulnerable.

Be Named as an Additional Insured

Requiring contractors to name your business as an additional insured can extend coverage and mitigate risk associated with their work.

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

An OCP policy, purchased by the contractor but covering your business, provides primary liability protection. This additional measure is valuable for safeguarding your interests.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance and liability responsibilities in contracts is crucial. For example, a contract specifying insurance requirements can prevent costly disputes. Proper insurance coverage is vital when hiring independent contractors. Without verifying coverage, you could be responsible for claims. Take proactive steps by assessing your current contractor policies to ensure adequate protection.