Use of Independent Contractors for Your Green Business

Understanding Liability Risks with Independent Contractors

When working with independent contractors, understanding liability risks is crucial for business owners but especially landscapers, irrigation specialists, composters, and other green businesses . Many assume their General Liability (GL) policy offers comprehensive protection against customer claims that independent contractors caused them damages, but the truth is more nuanced. Without proper insurance, the actions of independent contractors could expose businesses to uncovered risks if contractors don’t have their own coverage.

Your GL Policy Covers Your Business

Independent contractors are not employees, yet their actions can impact a business. While your GL policy might cover lawsuits related to a contractor’s work, these contractors aren’t automatically insured under your policy. This distinction is vital for business owners relying on freelancers or 1099 workers.

Insurance Solutions to Reduce Your Risk

Require Sub-Contractors to Have Their Own GL Insurance and Ask for Proof of Insurance

Many industries require sub-contractors to carry their own liability insurance. This ensures that any claims arising from their work are covered by their policy rather than impacting your business’s insurance.  This is an easy requirement where your independent contractors are working with other businesses including yours as they likely have already purchased coverage.  Always request a certificate of insurance (COI) from your sub-contractors. It’s risky to hire someone without verifying their coverage, which could leave you vulnerable to claims and liabilities.

Use a Well-Drafted Contract to Clarify Insurance Responsibilities

Draft clear contracts that outline insurance requirements and liability responsibilities. A well-defined contract can prevent disputes and ensure all parties understand their obligations. For example, specifying who is responsible for insurance coverage can avert misunderstandings in case of a claim.  This is even more important if your independent contractor has not yet engaged in the formal business structures.

Endorse Your Insurance Policy to Specifically Include Those Sub-Contractors

If your choice to pay an independent contractor is just a payment arrangement and not indicative of a business to business relationship, it may be better for you to invest and add coverage for them on your general liability insurance.Note, many insurance carriers for small businesses have a maximum amount of uninsured sub-contractors that they will allow for you to include on your insurance.

Search this site for additional information on how independent contractor status interacts with your other insurance coverages.  Consider conducting a risk assessment of your current contractor policies to ensure adequate protection and reduce potential liability.