Understanding Liability Risks with Independent Contractors
For business owners, managing liability risks is crucial, especially when working with independent contractors. While many assume their General Liability (GL) policy provides full protection, the truth is more complex. Misunderstanding these nuances can leave businesses financially vulnerable if contractors lack their own coverage.
Your GL Policy Covers Your Business
Independent contractors differ from employees, yet their actions can still impact your business. Although a GL policy may cover certain lawsuits related to a contractor’s work, independent contractors are not automatically covered under your business policy. It's essential to understand this distinction to ensure appropriate protection.
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 claims resulting from their work fall under their coverage, protecting your business’s financial standing.
Ask for Proof of Insurance
Always require potential contractors to provide a certificate of insurance (COI). Without verifying this, you risk exposure to unforeseen claims, which could be costly and damaging to your business.
Be Named as an Additional Insured
Requiring contractors to name your business as an additional insured on their policy can extend coverage and mitigate potential risks, offering added peace of mind.
Consider an Owner’s and Contractor’s Protective (OCP) Policy
An OCP policy, purchased by the contractor, provides primary liability protection to the hiring business, ensuring a robust safety net against unexpected claims.
Use a Well-Drafted Contract to Clarify Insurance Responsibilities
Drafting clear contracts that outline insurance requirements and liability responsibilities is critical. For example, a defined agreement can prevent disputes and ensure all parties understand their obligations.
The Importance of Proper Insurance Coverage
Proper insurance when hiring independent contractors is critical. Overlooking these details could leave your business responsible for significant claims. As a proactive measure, conduct a risk assessment of your current contractor policies to address potential gaps in coverage.
