Does General Liability Cover Independent Workers?

Understanding the Importance of Liability Risks

In today’s dynamic business environment, many companies frequently engage independent contractors to augment their workforce. However, it's essential to understand the liability risks involved when working with these 1099 workers. Many business owners assume their General Liability (GL) policy offers full protection, but the reality is more nuanced. If contractors don't have their own coverage, businesses could face significant risks.

Your GL Policy Covers Your Business

Independent contractors are not employees, but their actions can still impact your business significantly. While a GL policy might cover certain lawsuits involving the contractor’s work, independent contractors are not automatically insured under your business’s policy. Understanding this distinction is crucial in protecting your business from unforeseen liabilities.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

Many industries require contractors to carry their own insurance policies. This ensures that any claims arising from their work are addressed by their own policies, rather than falling on the business’s shoulders.

Ask for Proof of Insurance

A prudent step is to request a certificate of insurance (COI) from contractors. Hiring contractors without verifying their coverage poses significant risks. A COI serves as proof that they have active and sufficient insurance coverage.

Be Named as an Additional Insured

Requiring contractors to list your business as an additional insured on their policy can extend coverage to include your business under their liability protections, thereby mitigating risk.

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

An OCP policy, which is purchased by the contractor but covers the business, provides primary liability protection. This policy ensures that if an issue arises, your business is shielded from direct liability claims.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

A comprehensive contract should clearly outline insurance requirements and liability responsibilities. For example, a well-defined contract can prevent disputes by specifying coverage details, indemnity clauses, and the necessity of maintaining insurance. Ensuring proper insurance coverage is vital when hiring independent contractors. Failing to verify their insurance can leave your business accountable for claims. Business owners should consider conducting a risk assessment of their current contractor policies to safeguard against potential liabilities.