Understanding Liability Risks with Independent Contractors

When hiring independent (1099) contractors, it's critical for businesses to understand the liability risks involved. Many business owners might assume their General Liability (GL) policy fully protects them against potential issues arising from contractor work, but the reality is more nuanced. Without proper coverage, risks can abound if contractors don't secure their own insurance.

Your GL Policy Covers Your Business

Independent contractors, unlike employees, bring a different set of challenges and opportunities. While their actions could impact your business operations, they are not automatically covered under your GL policy. Typically, a GL policy may cover lawsuits that arise from a contractor’s work; however, it does not shield the contractor directly.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

It's common for industries to require independent contractors to maintain their own GL insurance. This precaution ensures that any claims stemming from their work are dealt with under their policy, not yours.

Ask for Proof of Insurance

Businesses should always request a certificate of insurance (COI) from contractors. This verification helps prevent potential liabilities tied to uninsured contractors and underscores the importance of confirmed coverage before commencing work.

Be Named as an Additional Insured

By insisting that contractors name your business as an additional insured, you extend your coverage and mitigate potential risks associated with their activities. This requirement benefits both your business and the contractor.

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

An OCP policy, typically purchased by the contractor, offers primary liability protection for your business. It's an effective way to gain coverage directly linked to specific projects without affecting your existing GL policy.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Clearly outlining insurance and liability responsibilities within a contract is essential. This approach prevents misunderstandings and legal disputes. For example, specifying that contractors must maintain specific insurance levels ensures compliance and coverage continuity. Proper insurance coverage is indispensable when engaging independent contractors. Business owners who overlook verifying contractors' insurance may find themselves shouldering unforeseen claims. Consider reviewing your independent contractor policies to conduct a thorough risk assessment today.