Understanding Liability Risks with Independent Contractors

Managing liability risks is crucial for business owners who work with independent contractors. Many assume that their General Liability (GL) policy extends comprehensive protection, but the reality is more complex. Without proper coverage, the actions of contractors can expose your business to considerable financial risk.

Your GL Policy Covers Your Business

While independent contractors aren't employees, their work can still affect your business. It's important to recognize that a standard GL policy may cover some lawsuits resulting from a contractor's work, but these contractors aren't automatically included under your business’s policy. Thus, failing to address this gap can leave your business vulnerable.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

It's common practice in many industries to ensure that contractors carry their own GL insurance. This requirement ensures that any claims related to their work are addressed by their own policy instead of your business’s. Always request proof of insurance in the form of a Certificate of Insurance (COI) to mitigate hiring risks without verified coverage.

Be Named as an Additional Insured

Requiring contractors to name your business as an additional insured on their policy can extend coverage, reducing potential liabilities. This approach offers an added layer of security by ensuring that both parties are protected in the event of a lawsuit.

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

An OCP policy, purchased by the contractor but covering your business, provides primary liability coverage for projects performed by the contractor. This policy can serve as a safety net, shielding your business from liability and ensuring proper protection is in place.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance requirements and liability responsibilities in your contracts can prevent disputes and misunderstandings. A well-crafted contract not only details expectations but also provides peace of mind that all parties understand their obligations. Understanding and bridging coverage gaps is crucial when hiring independent contractors. By ensuring they have the appropriate insurance, you can protect your business from unexpected claims. Conduct a risk assessment of your current contractor policies to safeguard your financial and legal interests.