Understanding the Importance of Liability Risks with Independent Contractors
When working with independent contractors, understanding liability risks is crucial for any business owner. Many assume that their General Liability (GL) policy provides full protection against potential claims involving these contractors. However, the reality is more nuanced, with several risks if contractors do not have their own coverage.
Your GL Policy Covers Your Business
Independent contractors are not employees, but their actions can still impact your business. While your GL policy may cover certain lawsuits involving the contractor’s work, independent contractors themselves are not automatically insured under your business’s policy. This leaves gaps that could potentially put your business at risk.
Insurance Solutions to Reduce Your Risk
Require Contractors to Have Their Own GL Insurance
Many industries require contractors to carry their own policy, ensuring that claims arising from their work are covered by their policy rather than by your business’s. This not only protects your company from financial responsibility but also ensures that the contractor is fully accountable for their actions.
Ask for Proof of Insurance
Businesses should always request a certificate of insurance (COI) from contractors before engaging their services. This simple step confirms the contractor's coverage and mitigates the risks associated with hiring uninsured contractors.
Be Named as an Additional Insured
Requiring contractors to list your business as an additional insured on their policy extends coverage to you and helps mitigate any risks associated with their work.
Consider an Owner’s and Contractor’s Protective (OCP) Policy
An OCP policy, although purchased by the contractor, provides primary liability protection for your business against claims arising from the contractor’s work. This policy is an excellent option to further shield your business from potential liabilities.
Use a Well-Drafted Contract to Clarify Insurance Responsibilities
Outline insurance requirements and liability responsibilities clearly in contracts. A well-defined contract can prevent disputes, as it establishes all parties' insurance obligations upfront.
Reinforcing the Importance of Proper Insurance Coverage
Proper insurance coverage is critical when hiring independent contractors. Business owners should remember that failing to verify the contractor’s insurance could leave them responsible for claims. Conducting a risk assessment of current contractor policies is a proactive step towards ensuring complete protection.