You hire an independent contractor to work on your computer system and critical data disappears. Who covers the cost of the recovery? Or you send an independent contractor out on a job, and he or she damages your customer's property. Who pays for the repair? You could end up in court trying to determine liability-or you could do it the easy way, by requiring that your independent contractors carry insurance to protect them and you if something goes wrong.
How do you know when and what type of insurance to require? "Common sense is a big factor," says Dave Ezra, an attorney specializing in insurance law with Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone in Irvine, California. "Just about any time someone is in a position to cause problems that can be associated with you or harm you, you should think about some basic insurance issues." The specific coverage will depend on the type of work the contractor does and the potential exposure involved. The four primary areas you'll typically consider are:
1. general liability to cover property damage and bodily injury liability;
2. workers' compensation to cover physical injuries on the job;
3. professional liability , also known as errors and omissions, which covers damage resulting from the delivery of professional services; and
4. fidelity bonds, which protect you and your clients from loss due to a contractor's theft or dishonesty.
It's a good idea to require that your contractors' policies name you as an "additional insured" so you as well as they are protected in case an injured party decides to sue both of you. Don't assume your own insurance will cover you for damages resulting from conduct of the independent contractors you hire; it might, but chances are, it won't.
The simplest way to check on independent contractors' coverage is to request their insurance certificates, but Ezra says you shouldn't stop there. Certificates simply tell you what insurance was in force at the time the policies were issued and won't give you details on exclusions or tell you if coverage has been canceled. Ask to see copies of the actual policies, or at least their declarations pages, and require that the insurers provide you with notice if the policy is going to be canceled. Pay attention to notification clauses, advises Ezra. Cautious people tend to request changes, such as insisting that they read "will provide" rather than something more vague like "will endeavor to provide." And keep in mind that insurance certificates are fairly easy to falsify, so take the time to verify the information your contractors provide with their insurance carriers.
- Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 2 Park Plaza, #650, Irvine, CA 92714-8516, (949) 474-1880.