Understanding Liability Risks with Independent Contractors

In today's gig economy, businesses frequently partner with independent contractors to achieve their goals. However, it's crucial to understand the liability risks involved. Many business owners assume their General Liability (GL) policy provides full protection, but the reality can be more nuanced. Without proper coverage, both businesses and contractors can find themselves facing significant financial risks.

Your GL Policy Covers Your Business

Independent contractors are not employees, but their actions can still affect your business. While a GL policy may cover certain lawsuits involving a contractor’s work, these contractors are not automatically insured under the business’s policy. This gap in coverage highlights the importance of ensuring that independent contractors have their own coverage to manage potential risks effectively.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Many industries require independent contractors to carry their own GL insurance policies. This practice ensures that any claims arising from a contractor's work are covered by the contractor’s policy rather than impacting the business's insurance. Such requirements can serve as a protective measure for both the business and the contractor.

Ask for Proof of Insurance

To mitigate risks, always request a certificate of insurance (COI) from contractors. Hiring contractors without verifying their coverage leaves a business vulnerable to potential liability issues. A COI provides assurance that the contractor is properly insured.

Be Named as an Additional Insured

Requiring contractors to list your business as an additional insured can extend coverage and help mitigate risk. This provision ensures that your business is protected under their policy in the event of a liability claim related to their work.

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

An OCP policy is purchased by the contractor and covers the hiring business, providing primary liability protection. This policy is an additional layer of security that can safeguard a business from potential claims arising from a contractor's negligence.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

It's essential to include detailed insurance requirements and liability responsibilities in your contracts. A well-drafted contract can prevent disputes and ensure that both parties are clear on their insurance obligations. For instance, defining who is responsible for what can save time and resources in the event of a claim.

The Importance of Proper Insurance Coverage

Ensuring that independent contractors have proper insurance coverage is critical. Without these measures, your business may be left responsible for claims, leading to unwanted financial strain. As a proactive step, consider conducting a risk assessment of your current contractor policies. It's time to ensure everyone involved is adequately protected.