Understanding General Liability for Independent Contractors

Understanding Liability Risks with Independent Contractors

When working with independent contractors, understanding liability risks is crucial. Many business owners mistakenly believe that their General Liability (GL) policy offers full protection. However, this assumption can lead to significant financial risks if contractors don't carry their own liability insurance.

Your GL Policy Covers Your Business

Independent contractors are not employees, which means their actions can indirectly affect your business. While your GL policy might cover lawsuits stemming from a contractor's work, it does not automatically insure the contractor themselves. Therefore, it’s essential to recognize the limitations of your coverage regarding independent contractors.

Insurance Solutions to Reduce Your Risk

Here are key strategies to mitigate risk when engaging with independent contractors:

Require Contractors to Have Their Own GL Insurance

Many industries mandate that contractors maintain their own liability policies. This requirement ensures that any claims resulting from their work fall under their policy, not the business’s.

Ask for Proof of Insurance

Businesses should always request a certificate of insurance (COI) from contractors. This step verifies their coverage and mitigates the risk of hiring uninsured contractors.

Be Named as an Additional Insured

By having your business listed as an additional insured on a contractor's policy, you extend your protection, reducing liabilities associated with their actions.

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

An OCP policy, bought by the contractor but covering the business, provides primary liability protection, significantly safeguarding the business.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance expectations in contracts can prevent disputes. This proactive step ensures all parties understand their obligations and liabilities.

Proper insurance coverage is critical when hiring independent contractors. Failing to verify insurance can leave your business vulnerable to claims, potentially resulting in significant financial loss. Conduct a risk assessment of your current contractor policies to ensure adequate protection.