If you hire an independent contractor to complete a project, you could be liable for their work. But you have insurance, so your policy covers a contractor working with your business, right? The short answer: probably not.
Let’s look at an example to demonstrate how the relationship between your General Liability Insurance and your contractors.
Contractors, Liability, and Your Small Business
Say you’re an interior designer and a client hires you to completely reimagine their finished basement. Paint samples, carpet swatches, and décor – you have it covered. But the homeowner expresses a desire for more storage and shelving for their kids. So you design custom built-ins and hire a carpenter to construct everything to your specifications.
A week after the project is completed, the built-in shelves buckle under the weight of the entertainment system, breaking all the expensive electronics. The client threatens your contractor and your business with a lawsuit, claiming his work damaged their personal property.
But isn't the carpenter – your contractor – is responsible for the collapsed shelving? In this situation, you may both shoulder the blame. Because you can be sued over your contractor's work, you need to make sure your interior design business has coverage that can address that kind of exposure, and an additional insured endorsement can help.
Additional Insured Status: The Benefits of Sharing
If you hire a contractor to do work for your business, you may need to add them as an additional insured to your General Liability Insurance policy. An additional insured is anyone besides a policyholder who is covered by an insurance policy. Additional insureds enjoy less protection, but their status affords them crucial protection, such as…
- Defense coverage. If a third party sues your additional insured over work they did for your business, your policy can address the claim. The additional insured can receive coverage for lawyers’ fees, court costs, and settlements or judgments.
- Coverage for certain third-party lawsuits. An additional insured may be covered when sued over bodily injuries, property damages, and advertising injuries.
So who’s responsible for adding the additional insured – you or the contractor? It depends largely on the scenario, and practices vary from industry to industry. In our example above, it would make sense for the carpenter to have you list him as an additional insured in the event he is sued over work he did for your business. If you were hired by an architecture firm to handle designing the interior of a new office, the firm might require you to have your own General Liability Insurance coverage and list them as an additional insured for protection. It can work both ways.
Commercial liability insurance coverage for contractors varies significantly from industry to industry, so ask your insureon agent about the cost and benefits of adding a contractor to your GL policy. For more information on additional insureds, read our article “Small Business Insurance Basics: What Is an ‘Additional Insured’?”