Understanding Liability Risks with Independent Contractors

In today’s dynamic business environment, independent contractors play a crucial role. However, understanding the liability risks associated with hiring these 1099 workers is vital. Many business owners mistakenly believe their General Liability (GL) policy offers comprehensive protection against all contractor-related risks. The reality, however, is more nuanced. Without their own coverage, contractors can pose significant risks to your business.

Your GL Policy Covers Your Business

Independent contractors are not classified as employees, yet the nature of their work can directly impact your business operations. It's a common misconception that a GL policy automatically includes coverage for contractor-related incidents. While your GL policy might cover lawsuits associated with a contractor’s activities, the contractor themselves aren't inherently insured under your business’s policy.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Businesses across various industries often enforce a policy requiring contractors to carry their own insurance. This is not merely procedural — it ensures that any claims arising from the contractor’s work are handled by their policy, rather than exposing your business to potential liabilities.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) from your contractors. This documentation offers assurance that the contractor holds an active policy. Hiring contractors without verifying this can expose your business to unnecessary risks.

Be Named as an Additional Insured

Requiring contractors to list your business as an additional insured on their policy is a proactive measure. This arrangement guarantees that the coverage extends to your business, helping to mitigate potential risks.

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

An Owner’s and Contractor’s Protective (OCP) policy is an alternative that offers primary liability protection. Though purchased by the contractor, the policy principally covers the business, reinforcing the insurance safety net.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

A detailed contract that clearly outlines insurance requirements and liability responsibilities is indispensable. For instance, a contract that explicitly states these conditions can avert potential disputes and clarify expectations.

Reinforcing the Need for Proper Insurance Coverage

When hiring independent contractors, ensuring proper insurance coverage is crucial. Business owners should always verify insurance details to avoid future liabilities otherwise shouldered solely by their business. Conducting a thorough risk assessment of your current contractor policies is an excellent starting point.