Understanding Liability Risks with Independent Contractors

In today's business environment, leveraging independent contractors—often referred to as 1099 workers—is a common practice. However, the nuances of liability can be complex. Many business owners mistakenly believe their General Liability (GL) policy covers everything, but the reality is more nuanced. Understanding these risks is crucial, especially if contractors don’t have their own insurance coverage.

Your GL Policy Covers Your Business

It's important to note that independent contractors are not employees, but their actions can significantly impact a business. While a GL policy may cover some lawsuits involving work done by contractors, these workers are not automatically insured under the business's policy. Business owners must be vigilant in ensuring that all parties involved are adequately covered to mitigate potential liabilities.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance Many industries mandate contractors carry their own General Liability insurance. This practice ensures claims stemming from their work are managed by their policy, not the business’s, thereby minimizing financial risk to the hiring company. Ask for Proof of Insurance Always request a certificate of insurance (COI) from contractors. Verifying coverage is critical; hiring someone without confirmed coverage exposes your business to significant risks. Be Named as an Additional Insured Consider requiring contractors to name your business as an additional insured on their policy. This enhances your protection by extending their coverage to your business in the event of a claim. Consider an Owner’s and Contractor’s Protective (OCP) Policy An OCP policy, purchased by the contractor, provides primary liability coverage to the hiring business for operations performed by the contractor. It is an efficient way to ensure comprehensive coverage. Use a Well-Drafted Contract to Clarify Insurance Responsibilities Detailing insurance requirements and liability responsibilities in contracts is vital. Clear contract terms prevent disputes and ensure all parties understand their obligations. For example, specifying the need for insurance coverage as a condition of the contract can avoid future legal issues. Proper insurance coverage is a critical component when hiring independent contractors. Failing to verify their insurance status could leave your business in the lurch for significant claims. Conduct a thorough risk assessment of your current contractor policies to safeguard your business effectively.