Understanding Liability Risks with Independent Contractors
Collaborating with independent contractors can boost your business capacity, but it introduces unique liability risks. It's crucial for business owners to understand these risks and not assume that a General Liability (GL) policy offers full protection. The reality is nuanced: if contractors lack their own coverage, the business could face significant exposure.
Your GL Policy Covers Your Business
Independent contractors are not employees, yet their work actions can still influence your business. While a GL policy may handle lawsuits involving a contractor’s work, independent contractors are not automatically insured under the business’s policy. This distinction is essential for managing liabilities effectively.
Insurance Solutions to Reduce Your Risk
Require Contractors to Have Their Own GL Insurance
Many industries mandate that contractors carry their own insurance policy. This requirement ensures that claims arising from the contractor’s work are managed by their insurance, not the business’s, reducing the business’s exposure to risk.
Ask for Proof of Insurance
It's prudent for businesses to request a Certificate of Insurance (COI) from contractors. Hiring contractors without verifying their insurance coverage exposes your business to potential liabilities.
Be Named as an Additional Insured
Have contractors list your business as an additional insured on their policy. This step extends coverage to your business and mitigates risk associated with the contractor’s actions.
Consider an Owner’s and Contractor’s Protective (OCP) Policy
An OCP policy, purchased by the contractor, provides primary liability protection for the hiring business. This solution ensures that liability claims are handled directly through the contractor’s policy.
Use a Well-Drafted Contract to Clarify Insurance Responsibilities
Outlining insurance requirements and liability responsibilities in contracts is crucial. A clear contract can prevent disputes and ensure that all parties understand their obligations. For instance, detailing insurance coverage in the contract can safeguard your business from unforeseen liabilities.
Proper insurance coverage when hiring independent contractors is not just a good practice; it is critical to protecting your business. Failing to verify insurance could leave you responsible for claims, which could be financially crippling. Take proactive action by conducting a risk assessment of your current contractor policies.
