Understanding Liability Risks with Independent Contractors

Many business owners assume that their General Liability (GL) policy covers all aspects of their operations, including the actions of independent contractors. However, the reality is more complex, and understanding these nuances is essential to mitigate liability risks. The risk involved with contractors who lack their own insurance coverage can create significant exposure for businesses, sometimes leading to unexpected liabilities.

Your GL Policy Covers Your Business

Independent contractors are not employees, but they can still significantly impact your business operations and, potentially, its liabilities. A General Liability policy typically covers lawsuits involving the work of contractors, but it does not automatically insure the contractor themselves under the business’s policy. This distinction is crucial for business owners seeking to safeguard their interests.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Many industries mandate that contractors carry their own GL policies. This requirement ensures any claims stemming from the contractor's work are covered by their insurance, not the business’s.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) to verify coverage. Hiring uninsured contractors can expose your business to financial risks if a claim arises.

Be Named as an Additional Insured

By requiring contractors to list your business as an additional insured on their policy, you extend coverage and reduce your risk exposure.

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 additional step can further safeguard your interests.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance requirements and liability responsibilities in contracts can prevent disputes. A comprehensive contract provides clarity and protects against misunderstandings. Proper insurance coverage when dealing with independent contractors is critical. Failing to verify their insurance could leave your business liable for claims. By assessing and managing these risks, you can create a safer operational environment. Consider conducting a risk assessment of your current contractor policies to ensure comprehensive protection against potential liabilities.