Understanding Liability Risks with Independent Contractors

In today's rapidly evolving business landscape, understanding liability risks when working with independent contractors is crucial. Many business owners assume their General Liability (GL) policy provides full protection, but the reality is more nuanced. Without the right precautions, you may be exposed to significant risks if your contractors lack their own coverage.

Your GL Policy Covers Your Business

While independent contractors are not employees, their actions can still impact your business. A GL policy may cover lawsuits involving the contractor's work, yet independent contractors are not automatically insured under your business’s policy. It’s important to recognize the potential gaps in coverage to effectively manage risk.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

One effective way to manage risk is to require contractors to carry their own GL insurance. This is a common practice across many industries as it ensures that any claims arising from their work are handled by their policy rather than yours.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) from your contractors. Hiring contractors without verifying their coverage can expose your business to unnecessary risk.

Be Named as an Additional Insured

Requiring contractors to list your business as an additional insured can extend coverage and mitigate risk. This way, your business benefits from the contractor’s insurance in case of claims related to their work.

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

An OCP policy, purchased by the contractor but covering the business, provides primary liability protection. It acts as a safeguard for your business by ensuring that contractor-related claims are managed primarily through the contractor’s insurance.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance requirements and liability responsibilities in contracts is essential. A well-drafted contract can prevent disputes and clarify expectations. For instance, explicating who is responsible for what in terms of insurance can save you from future legal hurdles.

Ensuring proper insurance coverage is critical when hiring independent contractors. Failing to verify insurance can potentially leave you responsible for claims. We encourage business owners to conduct a risk assessment of their current contractor policies to safeguard their business effectively.