Does General Liability Cover Independent Contractors?

The Importance of Understanding Liability Risks

When engaging independent contractors, it's crucial for business owners to understand the liability risks involved. Many wrongly assume that their General Liability (GL) policy offers full protection in these scenarios. However, the reality is more nuanced, and failing to address potential gaps in coverage can lead to significant risks.

Your GL Policy Covers Your Business

It's important to recognize that independent contractors are not considered employees, even though their actions can significantly impact your business. While a GL policy might cover lawsuits involving the work performed by a contractor, independent contractors are not automatically insured under the business’s policy. This oversight can leave businesses exposed if proper precautions aren’t taken.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Many industries mandate that contractors carry their own GL policy. This ensures that any claims arising from their work are managed through the contractor’s policy, rather than the hiring business’s policy. By requiring independent contractors to be insured, businesses can protect themselves from unforeseen liabilities.

Ask for Proof of Insurance

It's essential for businesses to request a certificate of insurance (COI) from independent contractors. By doing so, they reduce the risks associated with hiring contractors without verified coverage. A COI offers assurance that the contractor is protected, which indirectly safeguards the hiring business.

Be Named as an Additional Insured

Having contractors designate the business as an additional insured on their policy extends coverage and mitigates risk. This step ensures that the hiring business has legal rights under the contractor’s policy, providing another layer of protection against potential claims.

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

An OCP policy, purchased by the contractor but primarily covering the business, provides primary liability protection. This type of policy helps defensively shield businesses by assigning responsibility for claims to the contractor, offering targeted protection for company operations.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

A clearly formulated contract that outlines insurance requirements and liability responsibilities is pivotal. For example, specifying that the contractor must carry specific types of coverage, and including indemnification clauses, can prevent costly disputes and ensure clear understanding from both parties.

The need for proper insurance coverage cannot be overstated when hiring independent contractors. Business owners should remember that failing to verify contractor insurance can leave them financially responsible for claims. To prevent this, a thorough risk assessment of current contractor policies is recommended, ensuring that all potential gaps are adequately addressed.