Understanding Liability Risks with Independent Contractors

In today's dynamic business environment, the use of independent contractors is prevalent and offers flexibility. However, it's crucial for business owners to comprehend the liability risks associated with hiring these independent (1099) workers. Many business owners assume that their General Liability (GL) policy provides comprehensive coverage, but this perception is more nuanced. Failing to ensure that contractors have their own coverage could expose your business to significant risks.

Your GL Policy Covers Your Business

Independent contractors, while integral to your operations, are not your employees. Hence, their actions can still directly impact your business. A GL policy might cover lawsuits related to the work of a contractor, but independent contractors are not automatically insured under your business’s GL policy. This distinction heightens the need to assess the protection of your business assets appropriately.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Requiring your contractors to hold their own General Liability insurance is a common industry practice. It guarantees that any claims originating from their work are covered by their policy, minimizing your exposure.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) from your contractors. This step is crucial as hiring insured contractors without verifying their coverage can be immensely risky.

Be Named as an Additional Insured

Another essential practice is requiring contractors to name your business as an additional insured on their policy. This practice extends coverage to your business and helps mitigate potential risks.

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

An OCP policy, often purchased by the contractor, offers primary liability protection to your business, covering any liabilities stemming from the contractor's work on your behalf.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Ensure that contracts clearly detail insurance requirements and liabilities. Having a detailed contract not only sets expectations but can also prevent disputes by delineating roles and responsibilities clearly.

Proper insurance coverage is critical when hiring independent contractors. Business owners must realize that failing to verify insurance can leave them liable for claims. A robust approach would be conducting a risk assessment of your current contractor policies to ensure maximal protection.