Does Your GL Policy Cover Independent Contractors?

Understanding Liability Risks with Independent Contractors

Working with independent contractors is common in business, but it’s crucial to understand the liability risks involved. Many business owners mistakenly believe their General Liability (GL) policy provides full protection, but the reality is more nuanced. Without appropriate coverage, you could be exposed to significant risks if contractors don’t have their own insurance.

Your GL Policy Covers Your Business

Independent contractors are not employees, yet their actions can significantly impact your business. While a GL policy may cover lawsuits involving a contractor’s work, these contractors are not automatically insured under your business’s policy. This distinction is important to managing your liability risks effectively.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Many industries mandate that independent contractors carry their own GL insurance policy. This practice ensures that any claims arising from their work are covered by their policy, rather than yours. Requiring this insurance protects your business from potential claims, passing the liability onto the appropriate party.

Ask for Proof of Insurance

Always request a certificate of insurance (COI) from contractors before starting a project. This step verifies their coverage and mitigates risks. Without verification, you run the risk of assuming liability for incidents that should be covered by the contractor’s insurance.

Be Named as an Additional Insured

Requiring contractors to list your business as an additional insured on their policy extends your coverage. This inclusion helps mitigate risks by ensuring that you are covered if the contractor's actions lead to claims.

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

An OCP policy, purchased by the contractor but covering the business, can provide primary liability protection. This policy is a proactive measure to ensure that liability coverage directly protects your interests.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

It’s essential to outline insurance requirements and liability responsibilities in contracts with independent contractors. A clear contract can prevent disputes and make sure everyone understands their obligations. For instance, specifying that contractors must carry specific insurance stipulations can prevent misunderstandings and potential litigation.

Proper insurance coverage when hiring independent contractors is critical. Failing to verify insurance could leave you responsible for claims, a scenario best avoided by conducting a risk assessment of your current contractor policies today.