Understanding Liability Risks with Independent Contractors
Hiring independent contractors can be a cost-effective strategy for many businesses; however, it’s crucial to understand the liability risks involved. Many business owners mistakenly assume that their General Liability (GL) policy offers comprehensive protection, but the reality is more nuanced. Without proper coverage for contractors, businesses can face significant risks if claims arise from the contractor's work and they don't have their own insurance.
Your GL Policy Covers Your Business
It’s important to remember that independent contractors are not employees. This distinction means they operate under different insurance rules, but their actions can still impact your business. While a GL policy might cover some lawsuits related to the contractor's work, contractors aren't automatically insured under your policy. Thus, it’s critical to have measures in place to protect your business from potential claims.
Insurance Solutions to Reduce Your Risk
Require Contractors to Have Their Own GL Insurance
In many industries, it's a common practice to require contractors to carry their own GL insurance. This requirement ensures that any claims arising from their work are covered by their own policy, not yours, providing an additional layer of protection for your business.
Ask for Proof of Insurance
Always request a certificate of insurance (COI) from contractors prior to them starting work. This proves they have coverage and reduces the risk of liability falling on your business if an issue arises.
Be Named as an Additional Insured
By requiring contractors to list your business as an additional insured on their policy, you extend your coverage and mitigate risks. This ensures you have a first line of defense if any incidents occur due to the contractor’s work.
Consider an Owner’s and Contractor’s Protective (OCP) Policy
An OCP policy, purchased by the contractor but covering your business, provides primary liability protection. This type of policy can serve as an additional safety net, safeguarding your business from specific liabilities.
Use a Well-Drafted Contract to Clarify Insurance Responsibilities
The importance of having a clear and detailed contract cannot be overstated. Clearly outline the insurance requirements and liability responsibilities. For instance, specifying that the contractor must have their own insurance can prevent potential legal disputes and offer peace of mind.
Ensuring proper insurance coverage when hiring independent contractors is critical. Failing to verify the necessary coverage can leave your business dangerously exposed. Conduct a detailed risk assessment of your current contractor policies and take action where needed to secure your business against unforeseen liabilities.