Q: I Hired Contractors to Help with My Business. Are They Covered by My Business Insurance?
A: You might assume that anyone doing work for your company is covered by your business insurance, but that isn’t always the case. In fact, some of your most basic insurance policies, such as General Liability Insurance, may expressly exclude independent contractors. Other policies, such as Workers’ Compensation Insurance, may mandate their inclusion if they don’t already have coverage.
Before a project starts, have your contractors show you their Certificate of Liability Insurance. If they don’t have coverage and you still want to hire them, you may be able to add contractors and subcontractors as “Additional Insureds” to your General Liability policy. To learn more, read, “Small Business Insurance Basics: What Is an ‘Additional Insured’?”
Why Your Contractors and Subcontractors Need Insurance: Details
When you hire an independent contractor, be sure to assess whether or not they carry basic business insurance, such as General Liability Insurance or Errors and Omissions Insurance. If they don’t, their mistakes can become your worst nightmare.
For instance, let’s say you own a small tech firm, and you’ve taken on one too many projects. To help you meet your deadlines, you hire a wunderkind freelancer to come to your office and write code. Imagine what would happen if the whiz kid…
- Writes a program that fails to live up to your client’s expectations.
- Drops a client’s laptop in the kitchen sink.
- Loses a jump drive containing your client’s confidential information.
Your client may seek reimbursement from your contractor, but if that doesn’t work, who do you think will be the next target?
A lawyer’s job is to get compensation for their client, and they’ll cast a wide net to achieve that goal. If you are targeted, brace yourself for the expense of mounting a defense. Without the appropriate coverage, you could end up paying for…
- Attorney fees.
- Investigator bills.
- Court costs.
- Negotiated settlements.
- Court-ordered judgments.
All the looming expenses may tempt you to ignore a summons, especially when you know your business did nothing wrong. But that’s a bad idea. When you don’t respond to a summons, the judge can render a default judgment against you. As a result, you may end up paying the damages demanded in the original complaint.
How to Protect Your Assets
Hiring contractors and subcontractors exposes your small business to more risk. That’s why many insurance policies include a clause that requires you to only work with contractors who have coverage.
You can take steps to protect your business assets by ensuring the independent contractors you hire have basic coverage. Do this by…
- Putting an insurance requirement in your contract.
- Requesting proof of insurance (e.g., a Certificate of Insurance) at the start of any project.
- Naming contractors and subcontractors as “Additional Insureds” on your policy.
- Keeping your policies current.
Your line of work and profession may affect the kinds of policies your contractors should carry to work with your company. For specific advice about your contractors’ insurance needs, contact us today.