Does General Liability Cover Independent Contractors?
Understanding Liability Risks with Independent Contractors
Working with independent contractors can offer flexibility and expertise, but it also brings a unique set of liability risks. Many business owners mistakenly believe that their General Liability (GL) policy offers full protection for all operations, including those involving contractors. However, the reality is more nuanced, and failing to address these risks can leave your business vulnerable if contractors don't carry their own coverage.
Your GL Policy Covers Your Business
Independent contractors, while crucial to many operations, are not employees. However, their work can still have significant implications for your business. It's important to understand that although your GL policy may cover certain risks associated with contractors' work, independent contractors themselves are not automatically insured under your business's policy. Therefore, if a lawsuit arises from a contractor's actions, your policy may not suffice.
Insurance Solutions to Reduce Your Risk
Require Contractors to Have Their Own GL Insurance
Many industries mandate that independent contractors maintain their own General Liability insurance. This requirement ensures that claims tied to their work are addressed by their own coverage rather than impacting your business. By doing so, you protect your business from potential financial burdens.
Ask for Proof of Insurance
Don't just take a contractor's word for it—request a certificate of insurance (COI) before starting any work. This documentation serves as proof that the contractor has adequate coverage and can prevent potential risks associated with uninsured work. Hiring without verifying coverage could expose your business to unforeseen liabilities.
Be Named as an Additional Insured
To further protect your business, require contractors to list your company as an additional insured on their policy. This action helps extend coverage to your business and mitigates risk should any issues arise from the contractor’s activities.
Consider an Owner’s and Contractor’s Protective (OCP) Policy
An Owner’s and Contractor’s Protective (OCP) policy, purchased by the contractor but benefiting your business, offers primary liability protection. This ensures that if a claim is made, your business is covered first, adding another layer of security.
Use a Well-Drafted Contract to Clarify Insurance Responsibilities
A clearly articulated contract specifying insurance coverage and liability responsibilities can prevent disputes down the line. For example, a contract that states both the contractor’s and the business’s insurance requirements can avert misunderstandings and ensure smoother operations.
The Importance of Proper Insurance Coverage
Ensuring proper insurance coverage is critical when dealing with independent contractors. Failure to verify a contractor's insurance could leave your business liable for claims or damages. As a proactive measure, conduct a risk assessment of your current contractor policies to ensure you’re adequately covered.