Joe Aiello | Mar 20 2025 12:00

Understanding Liability for Independent Contractors

The Importance of Understanding Liability Risks

When it comes to hiring independent contractors, understanding liability risks is crucial for business owners. Many assume that their General Liability (GL) policy offers comprehensive protection, but the reality is more nuanced. If contractors lack their own coverage, the risks can be significant for your business.

Your GL Policy Covers Your Business

Independent contractors are not employees, yet their actions can still impact your business. Although a GL policy might cover lawsuits related to a contractor's work, it does not automatically insure independent contractors under your business’s policy. Therefore, having the appropriate coverage is essential.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Many industries require contractors to have their own policies to ensure that claims from their work are covered. By having their policies, any liability claims can be directed accordingly, rather than falling on the business.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) before engaging a contractor. This step is important to verify that they have the necessary coverage, reducing the risks associated with hiring uninsured contractors.

Be Named as an Additional Insured

Requiring contractors to add your business as an additional insured can extend coverage and significantly mitigate potential risks. This step ensures that your business has greater protection against claims.

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

An OCP policy can be a beneficial option. Purchased by the contractor, it provides primary liability protection for the business, ensuring the business is adequately covered.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Having a clear contract that outlines insurance requirements and liability responsibilities is vital. This clarity can help prevent disputes and ensure that all parties are aware of their obligations. For instance, by specifying who is responsible for injuries or damages upfront, conflicts can be easily managed.

Proper insurance coverage is critical when hiring independent contractors. Failing to verify their insurance could leave your business responsible for claims. By taking proactive steps, such as a risk assessment of your current contractor policies, you can protect your business more effectively.