Understanding Liability Risks with Independent Contractors

In today's business landscape, working with independent contractors, or 1099 workers, is commonplace. However, it's crucial for business owners to understand the liability risks associated. Many presume that their General Liability (GL) policy provides blanket protection, but the truth is more nuanced. Without proper coverage, business owners might find themselves liable for claims associated with a contractor's actions.

Your GL Policy Covers Your Business

Independent contractors are not employees, yet their activities can significantly impact a business. While a GL policy may cover lawsuits related to a contractor’s work, contractors are not automatically insured under the business’s policy. Therefore, it's essential to ensure that independent contractors have adequate insurance, as any gaps can cause significant financial exposure for your business.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

In many industries, it is a standard requirement for contractors to carry their own General Liability insurance. By ensuring they have their own coverage, any claims stemming from their work are handled by their policy, safeguarding the business from potential liabilities.

Ask for Proof of Insurance

Always request a Certificate of Insurance (COI) from your contractors. This simple step verifies their coverage and mitigates the risk of hiring uninsured contractors, which can lead to costly claims against your business.

Be Named as an Additional Insured

By requiring contractors to list your business as an additional insured on their policy, you extend coverage to include potential claims related to their work, significantly reducing your risk exposure.

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

An OCP policy is a unique solution that contractors can purchase to provide primary liability protection for the business. This policy covers any claims arising from their work, offering an added layer of security.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance requirements and liability duties in your contracts is paramount. A well-drafted contract not only ensures compliance but can also prevent costly disputes. For example, explicitly stating insurance responsibilities can clarify expectations and prevent misunderstandings.

The Importance of Proper Coverage

Proper insurance coverage is critical when hiring independent contractors. Failure to verify coverage could leave business owners responsible for unforeseen claims. Conducting a risk assessment of current contractor policies is an excellent step towards mitigating these potential pitfalls.