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You Break It.

Don't pay for your contractor's mistakes.

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This story appears in the November 2000 issue of Entrepreneur. Subscribe »

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:

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