Understanding Liability Risks with Independent Contractors
When working with independent contractors, it’s vital for businesses to understand the nuances of liability risks. Many business owners assume that their General Liability (GL) policy offers full protection. However, the reality is more nuanced. Risks can arise if contractors do not possess their own coverage, possibly jeopardizing the business financially.
Your GL Policy Covers Your Business
Independent contractors, unlike employees, operate separately but their actions can still significantly impact a business. While a GL policy might cover lawsuits linked to a contractor’s work, independent contractors are not automatically insured under the hiring business’s policy. This gap could leave businesses vulnerable if the contractor lacks coverage.
Insurance Solutions to Reduce Your Risk
Here are several strategies to mitigate risk when working with independent contractors:
Require Contractors to Have Their Own GL Insurance
Many industries mandate that contractors carry their own GL insurance policies. This requirement ensures that any claims arising directly from their work are covered by their policy rather than the hiring business’s, shielding the business from potential costs.
Ask for Proof of Insurance
Businesses should request a Certificate of Insurance (COI) from contractors. Without verifying coverage, the business assumes unnecessary risks. This step confirms that contractors have active insurance policies that will respond to claims if needed.
Be Named as an Additional Insured
Requiring contractors to list the business as an additional insured extends the policy’s coverage, providing an extra safety net that mitigates risk for the business in the event of a claim.
Consider an Owner’s and Contractor’s Protective (OCP) Policy
An OCP policy, although purchased by the contractor, offers primary liability protection specifically for the business. This policy acts as a layer of defense, ensuring that any liability stemming from the project doesn’t fall solely on the business.
Use a Well-Drafted Contract to Clarify Insurance Responsibilities
Outlining insurance requirements and liability responsibilities in contracts is pivotal. A detailed contract can prevent disputes and ensure both parties understand their roles, reducing potential legal complications.
For example, having a clear agreement that specifies insurance coverages can avert misunderstandings and protect the business from unexpected liabilities.
Why Proper Insurance Coverage is Critical
Secure coverage is essential when hiring independent contractors. Business owners must realize that failing to verify a contractor’s insurance could leave them liable for claims. Take action by conducting a risk assessment of your current contractor policies to ensure adequate protection and peace of mind.
