Is Your Business Protected? Liability for 1099 Workers

Understanding Liability Risks with Independent Contractors

In today's dynamic business environment, working with independent contractors is a common practice. However, it's crucial for business owners to understand the liability risks associated with these relationships. Many assume that their General Liability (GL) policy offers full coverage, but the reality is more nuanced. If your contractors lack their own insurance, your business could be exposed to significant risks.

Your GL Policy Covers Your Business

Although independent contractors are not employees, their actions can still impact your business. While your GL policy might cover lawsuits involving a contractor’s work, it doesn't automatically insure independent contractors under your policy. Understanding this distinction is key to ensuring your business is adequately protected.

Insurance Solutions to Reduce Your Risk

Require Contractors to Have Their Own GL Insurance

It's common policy in many industries to require contractors to carry their own General Liability insurance. This ensures that claims arising from their work are covered by their policy, rather than your business's, providing an extra layer of protection.

Ask for Proof of Insurance

To safeguard against potential liabilities, always request a certificate of insurance (COI) from your contractors. Verifying their coverage is essential, as hiring uninsured contractors could leave your business exposed.

Be Named as an Additional Insured

By requiring your contractors to list your business as an additional insured on their policy, you extend your coverage and mitigate risk. This step provides an extra measure of security that can be critical if issues arise.

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

An OCP policy, typically purchased by the contractor, provides primary liability protection for your business. This policy safeguards you by covering claims specifically related to the contractor's work for your business.

Use a Well-Drafted Contract to Clarify Responsibilities

Clearly outlining insurance requirements and liability responsibilities in your contracts is vital. For example, a contract stipulating that the contractor must maintain certain insurance limits can prevent disputes and protect your business from unexpected claims.

Proper insurance coverage is critical when hiring independent contractors. Without verifying their insurance, your business could be on the hook for any claims. Consider conducting a risk assessment of your current contractor policies to better understand potential liabilities and ensure you're fully protected.