Understanding Liability Risks with Independent Contractors

 

Working with independent contractors, or 1099 workers, presents unique liability challenges for businesses. Many business owners mistakenly believe that their General Liability (GL) insurance offers comprehensive protection against all contractor-related issues. The reality, however, is more complex. If a contractor lacks their own insurance, the financial and legal risks to your business could be significant.

 

Your GL Policy Covers Your Business

 

Independent contractors are not classified as employees, yet their actions can affect your business significantly. While a GL policy might cover certain lawsuits related to the work of a contractor, it does not automatically extend insurance to the contractor themselves. This distinction is critical as it means you need to ensure the contractor has appropriate coverage.

 

Insurance Solutions to Reduce Your Risk

 

Require Contractors to Have Their Own GL Insurance

 

Many industries require contractors to carry their own General Liability insurance policy. This practice ensures that any claims resulting from their work are handled by the contractor’s insurance, not your business’s policy.

 

Ask for Proof of Insurance

 

Before hiring a contractor, request a certificate of insurance (COI). This document verifies their coverage and mitigates risks that could arise from working with uninsured contractors.

 

Be Named as an Additional Insured

 

By requiring contractors to list your business as an additional insured on their policy, you extend their coverage to include your business, further reducing potential risks.

 

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

 

An OCP policy, typically purchased by the contractor, provides primary liability protection that covers your business, offering additional peace of mind.

 

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

 

Ensure that your contracts clearly outline insurance requirements and liability responsibilities. A well-drafted agreement can avert disputes, setting clear expectations regarding who is responsible for what coverage. Proper insurance coverage is vital when employing independent contractors. Without verifying a contractor’s insurance, your business could be liable for claims arising from the contractor’s work. It’s vital to conduct a risk assessment of your current contractor policies to safeguard your operations.