Does My Business Insurance Cover Independent Contractors?

Independent contractors play an important role in today’s economy across various industries. Whether through remotely working freelancers, contracted project consultants, or in-person tradespeople on construction projects, the growth of the gig economy has enabled employers to make more flexible hires.

With these hires, businesses must remain mindful of the new liabilities they may incur. While hiring independent contractors comes with many benefits—including not having to provide them with benefits—they also bring unique risks that require careful planning.

In this blog, we’ll discuss whether contractors need insurance, the liability that independent contractors carry, and how business insurance can help protect your business from costly claims.

What Is Business Insurance and Why Does it Matter?

Business insurance is a crucial layer of protection for any modern business operation. Liabilities arise in every industry, and litigation is generally not a cheap ordeal but something to be avoided if possible.

While independent contractors are not technically your employees, your company can still be held accountable for damages they cause. Here are a few reasons that business insurance from a reputable insurance company is important when dealing with independent contractors:

• It safeguards businesses’ assets and operations against claims of property damage, bodily injury, and other legal disputes that could arise from the work and actions of independent contractors. This protects you from legal fees
• It helps businesses comply with legal and contractual obligations, as certain regulations govern different industries
• It protects contractors’ businesses and protects individuals from the financial risks associated with their work
• For both parties, it shows a commitment to professionalism, accountability, and safe working relationships

Does a CGL Policy Cover Independent Contractors?

Subcontractor General Liability Insurance policy is insurance coverage that protects businesses from third-party claims of bodily injury, personal injury, and property damage.

As a business hiring independent contractors, you should understand when your CGL policy covers independent contractors and when it does not. Typically, a CGL policy will cover a business and will only cover contractors if the business chooses to extend coverage to them through an additional insured amendment to the policy. Additionally, suppose the business is sued or otherwise named in a lawsuit related to the contractor’s work. In that case, their CGL policy may provide some protection for that claim, covering legal costs and other damages.

Some scenarios where CGL policies would not cover independent contractors include when the independent contractor is not named as an additional insured on your business insurance or when the third-party claim made is not one covered under your CGL policy (e.g., poor workmanship). CGL policies sometimes provide coverage for subcontractors, but they often do not clearly highlight the need for businesses to carefully review the details of their CGL policies and any insurance that hired independent contractors may carry.

Understanding what is and isn’t covered can help businesses prepare for unexpected claims, ensuring that all parties are protected. You can also establish independent contractor insurance requirements so that you can ensure they have adequate protection for their specific needs before beginning a job.

Common Mistakes Businesses Make When Working With Independent Contractors

Hiring independent contractors gives your business added flexibility, but it also comes with risks that many companies overlook until it’s too late. Avoiding these common missteps can help you protect your business from liability and costly insurance claims:

1. Assuming Your Policy Automatically Covers Contractors
Many business owners assume that if they have a Commercial General Liability (CGL) policy, they’re covered for anything a contractor does. But unless your contractor is named as an additional insured, there’s no guarantee your policy will step in. Always confirm the terms of your coverage.

2. Failing to Request a Certificate of Insurance (COI)
A COI is your proof that a contractor carries their own insurance, and one of the most important documents to collect before work begins. Without it, you have no way to confirm their coverage or limits. Learn how to manage COIs more efficiently with AI.

3. Overlooking Exclusions or Lapses in Coverage
Just having a COI isn’t enough. It’s crucial to review the details—such as policy limits, expiration dates, and whether the coverage encompasses all relevant work types. Contractors may carry insufficient coverage or let policies lapse without informing you.

4. Not Defining Insurance Requirements in Contracts
If your contracts don’t explicitly require insurance, include indemnity clauses, or outline responsibility for damages, you’re missing a key layer of protection. Clear language up front can prevent finger-pointing later.

5. Skipping Proper Vetting
Trusting a referral or resume isn’t enough. Vetting contractors includes verifying credentials, insurance, and prior work. A few extra steps at the start can save you major headaches down the line.

What Is the Liability of an Independent Contractor?

Legally, an independent contractor is a business or entity that agrees to perform work under a contract. Working as an independent contractor means that you’re not technically an employee of the businesses you’re doing jobs for but rather a contracted worker temporarily hired by various clients. Independent contractors perform tasks for a company but operate independently from them, keeping control over their work methods, schedules, taxes, and insurance coverage.

While businesses are liable for the actions of their employees (within the scope of their employment), typically, independent contractors are responsible for their own liabilities. Since their hiring party does not directly control them, the business that contracts them is usually not liable for their damages.

However, in cases where the contractor is not adequately protected by a CGL policy or other coverage and does not have the assets to cover the damages, the claim could be passed along to you, as the hiring party, to handle the financial ramifications.

How Can My Business Mitigate Risks Associated with Independent Contractors?

While clients who hire independent contractors should not generally be held responsible for the damages and third-party claims that they cause, there are cases where it happens. Therefore, taking steps to mitigate risks associated with independent contractor liability is crucial.

Here are a few best practices that your business should follow when working with contractors:

• Create contracts that clearly outline the scope of work, timeline(s), and responsibilities. Include any independent contractor insurance requirements or indemnification provisions necessary to protect yourself as their client.
• Vet all contractors before hiring them, and certainly before putting them to work, to ensure they have the proper protections.
• Verify contractors’ insurance coverage by requesting a certificate of insurance, or COI, from each of them to prove that they have a policy that covers damages that could arise from their work.

The Necessity of Getting Business Insurance

In conclusion, understanding the risks associated with hiring independent contractors is an important undertaking for employers who want to protect themselves and their hired workers.

CGL policies, which protect against third-party claims of personal injury, bodily injury, and property damage, are essential for businesses and independent contractors to safeguard themselves from potential liabilities and risks.

Finally, the onus is on the hiring business to ensure adequate coverage for all hires. After all, you could be held financially responsible if you put a contractor to work who has neither the coverage nor the assets to cover an unexpected claim.

Need More Help Understanding Your Contractors’ Coverage?

Are you still unsure about independent contractors’ professional liability insurance or why it’s so important to ensure adequate coverage for all hires? Talk to us today to control your compliance and avoid suffering serious ramifications from unexpected claims.