Errors and omissions insurance (E&O) often doesn’t cover the mistakes made by independent contractors working for your business. To protect yourself from lawsuits, you may want to require contractors to carry coverage.
What type of disputes does errors and omissions insurance cover?
Errors and omissions insurance covers the cost of lawsuits related to work mistakes, including:
- Failure to deliver promised services
- Negligence in providing professional services
- Incorrect or incomplete work
- Errors and oversights
Since independent contractors working for your business are often just as likely to make these types of mistakes as an employee, your contractors should carry E&O coverage.
When are independent contractors liable for work mistakes?
An independent contractor can be held liable for a mistake that negatively impacts your business or your clients.
For example, say an IT consultant hired by your company recommends a much-hyped software as a service (SaaS) to one of your clients. Unfortunately, the recommended SaaS doesn't have a reliable backup feature and the client ends up losing valuable data. Your client files a professional negligence lawsuit against your company and the consultant, too.
In a situation like this, contractors should have the insurance protection necessary to pay for their legal costs, including any settlements or judgments rewarded to the client. If contractors don’t have coverage, your business may be forced to take on a heavier burden.
If you decide to sue your contractor for the damage their mistake caused to your business, it may also be difficult to collect a settlement or judgment if the contractor doesn’t carry E&O insurance.
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