The Importance of Understanding Liability Risks with Contractors

When working with independent contractors, it's crucial for business owners to understand the liability risks involved. Many assume their General Liability (GL) policy offers full protection, but the reality can be more complex. If your contractors don’t have their own coverage, you might face significant risks that could impact your business.

Your GL Policy Covers Your Business

Independent contractors are not employees, but the effects of their actions can certainly have implications for your business. Although a GL policy may cover lawsuits stemming from work they perform, these contractors are not automatically insured under your business policy. It's important to verify the coverage scope to prevent unexpected complications.

Insurance Solutions to Reduce Your Risk

Require contractors to have their own GL insurance
Within many industries, it's a standard practice to require contractors to carry their own GL policy. This ensures that any claims arising from their work are covered under their policy rather than putting the burden on your business.

Ask for proof of insurance
Always request a certificate of insurance (COI) from your contractors. Hiring contractors without verifying their coverage poses immense risks, which many businesses unwittingly encounter.

Be named as an additional insured
Requiring contractors to list your business as an additional insured not only extends coverage but also helps mitigate risk effectively.

Consider an Owner’s and Contractor’s Protective (OCP) Policy
An OCP policy, when purchased by the contractor, primarily covers the business, offering an additional layer of liability protection.

Use a well-drafted contract to clarify insurance responsibilities
It's vital to outline insurance requirements and liability responsibilities in your contracts. A clear contract can prevent disputes and ensure everyone is aware of their obligations. For instance, having a detailed explanation of who holds what coverage can stifle conflicts before they arise.

Concluding Thoughts on Contractor Coverage

Ensuring proper insurance coverage is paramount when hiring independent contractors. Failing to verify their insurance could leave your business exposed and responsible for claims. It's advisable to conduct a risk assessment of your current contractor policies to safeguard your business’s future.