General Liability Insurance for Independent Contractors
More often than not, independent contractors need their own General Liability Insurance because if they aren't insured, employers can end up shouldering the liability – and the costs – when something goes wrong.
Independent Contractor Insurance: Why It's Essential
Independent contractor liability insurance is essential for three reasons:
- To ensure that contractors can pay lawyers' fees and damages if they're sued over their work.
- To ensure that people employing contractors don't end up paying if the contractor is sued.
- To meet statutory requirements in states and industries where everyone needs to be covered by insurance (for example, in construction).
Let's look at those in detail.
First, 1099 contractors may not consider themselves "real" businesses, but contractors and freelancers have the same legal obligations and liability exposures as larger firms. That means they can be sued by clients and customers.
What does General Liability Insurance cover for contractors? It can provide funds to pay lawyers and judgments or settlements if they are sued over damaging client property, causing bodily harm, or making advertising mistakes.
Second, if a business hires a 1099 contractor who doesn't have liability insurance, the business could be held responsible for their wrongdoing or accidents they cause.
Finally, some industries, like construction, have specific independent contractor insurance requirements. Those requirements are dictated at the state level, but most times, it’s better for both parties to have their own General Liability Insurance. If you have questions about your requirements, contact an insurance agent or lawyer.
Are Independent Contractors Liable for Damages?
Yes, independent contractors can be sued and held liable for damages, just like any other business owner.
Many independent contractors scoff at the idea of being sued. They know and trust their clients and deliver high-quality work – why would anyone sue?
But lawsuits can be unpredictable. When a lawyer brings a lawsuit, their job is to recover as much as possible for their client. To do that, they might sue everyone involved with an incident – including contractors whose work was only indirectly related.
Without 1099 insurance, you'd have to pay out of pocket to defend yourself, plus pay for damages. With a General Liability Insurance policy, though, those expenses are covered.
Different industries face different risks. A contractor hired to design a webpage faces significantly different risks than one hired to remodel a bathroom. The web designer is more likely to run into copyright infringement issues, for example, and the remodeler faces a greater risk of the homeowner accidentally being injured. Good thing independent contractor General Liability Insurance can address both instances.
How to Get General Liability Insurance for Independent Contractors
There are two ways to make sure a contractor has liability coverage:
- Add the contractor to your General Liability policy as an “additional insured.” Essentially, that means they are covered by your insurance for the duration of the job or longer. If you work with multiple contractors, you can usually add each of them to your General Liability Insurance.
- Require your contractors to get their own General Liability Insurance. Small business owners do this by adding the requirement to their contracts. You can check the 1099 worker’s Certificate of Liability Insurance to make sure they're covered.
Adding contractors as additional insureds is often the more expensive option. It’s basically like hosting a party and shouldering the entire cost on your own. However, it could be the right choice for you, depending on your situation and who you’re working with.
The second option – requiring 1099 workers to have General Liability Insurance before you hire them – is usually the more cost-effective safeguard for your business. Everyone is responsible for the work they do, and that saves you money.
Both options give you assurance that your business and the contractor have protection if either is faced with lawsuit over third-party bodily injury or property damage.
Additional Insured Status: The Benefits of Sharing
Business owners can add contractors as additional insureds to their 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 coverage, such as:
- Defense coverage. If a third party sues the additional insured over work they did for the business, the business owner’s 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 – the business owner or the contractor? It depends largely on the scenario, and practices vary from industry to industry. For example, if you own a construction business and hire a carpenter, it might make sense for you to add him to your policy as an additional insured. 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.
1099 liability insurance varies significantly from industry to industry, so ask your Insureon agent about the cost and benefits of adding a contractor to your General Liability policy. For more information on additional insureds, read “Small Business Insurance Basics: What Is an ‘Additional Insured’?”
Other Types of Insurance for Independent Contractors
In addition to General Liability Insurance, contractors may need:
If you're a small business owner, a contractor, or both, fill out an application with Insureon and get coverage from top-rated U.S. carriers to protect your business.