Why Independent Contractors Need Their Own Errors & Omissions Insurance
When you invest in an Errors and Omissions Insurance policy, you have protection to back up your small business’s professional services – your work, no one else’s. Typically, your E&O coverage won’t extend to any independent contractors you hire.
You and your contractors will want E & O Insurance because it can cover lawsuits over…
- Failure to deliver promised services.
- Negligence in providing professional services.
- Poor, incorrect, or incomplete work.
- Errors and oversights.
Let’s look at an example to illustrate the relationship between your Errors & Omissions Insurance and your contractors.
Professional Negligence: Who's Liable – You or the Contractor?
Say you’re an event planner and a couple hires you to organize their wedding reception. You’ve got a list of reliable vendors (i.e., independent contractors, such as bakers or florists) to call on for their services. Once you receive approval from the clients, you coordinate the festivities.
The big day arrives and the blissfully wedded couple is thrilled with the celebration – until the groom swells up after eating a slice of cake. The baker made their cake with a layer of strawberry ganache, and the groom is violently allergic to strawberries.
The couple gave you a list of food allergies, including strawberries, and you gave the list to the caterer and the baker. The couple files a professional negligence lawsuit against you and the baker – your contractor. When you’re sued over your contractor’s work, you need to make sure your small business can address that risk exposure.
A Round of E&O Coverage for Everyone!
Your small business’s E and O Insurance policy (aka Professional Liability Insurance) can cover lawsuit expenses, such as…
- Court costs.
- Lawyers’ fees.
- Judgments and settlements.
- And more.
That coverage doesn’t always extend to your contractors, so it’s best if they have their own policy.
You can also offer some coverage to your contractors by adding them as an “additional insured” to your Errors and Omissions policy. An additional insured is anyone besides a policyholder who is covered by a policy. Additional insureds enjoy less protection and only for the duration of a project.
Say the wedding photographer you hired fails to deliver high quality photos months after the event, so the couple sues your business. Even if you added the photographer as an additional insured to your policy, he’s no longer protected. The photographer should have his own coverage because if you’re sued by the client, you could sue the contractor if it was his fault.
For more information on contractor liability, read our post “The Small-Business Owner’s Guide to Contractor Liability Insurance.”