Layman’s Guide to Contractors Liability Insurance

About Contractors liability insurance

Hiring contract labor in California can open you, the employer, up to liability for the actions of your contractors. You may make every effort to keep your workers and others safe, but accidents can still happen. 

Whether or not you are directly responsible or even present when an accident takes place, there is a good chance that the victims could hire a personal injury attorney who will file a lawsuit against both you and the contractor. You need to be protected from these types of incidents and consider your legal liability any time an accident occurs.

Contractors liability insurance is a form of coverage that pays for the damages caused on a job site as the result of the work of a contractor Contractors liability insurance coverage can and should be purchased by a contractor for all jobs, but the employer may also benefit from a contractors liability insurance policy that provides protection in the event the contractor causes an accident on his or her property. 

Ideally, both the contractor and the employer will be covered any time there is an event for which either could be liable. This works out to good customer success and increased safety for all.

Will Workers’ Compensation Cover Contracted Employees?

Sometimes the line is blurred between workers’ compensation coverage and liability policies. Essentially, workers’ compensation pays for an employer’s own employees when they are injured on the job, while a liability policy pays for injuries to non-employees. This seems relatively straightforward, but it can become confusing when injuries occur under certain circumstances.

For example, most contractors carry workers’ compensation as required by law on their own employees, but a person who is working for you may be considered a contractor or a temporary employee. If the person you were treating as a contract employee is actually a temporary employee, he or she is eligible for coverage under your workers’ compensation policy. 

The same situation may occur with the contract labor firm; employees they treated as contract labor may actually be temporary employees, thereby confusing the liability issue. Some employers choose to carry a medical coverage addendum just so that anyone working on the job is covered for medical expenses, no matter what the job designation.

A contractor hired to do work for your company may have workers’ compensation coverage for his or her employees, and a third party may also be responsible for costs of an accident. 

However, to be on the safe side, just like doctors income protection insurance, most employers find that having company liability coverage gives peace of mind that, no matter what the circumstances, the business will be protected from liability in the event of an accident.

One other reason to have insurance coverage outside of workers’ compensation is that a liability policy will cover you once the contractor has moved on to the next job. It is not outside the realm of possibility for a contractor or a contracted employee to cause a danger that goes undetected until after the worker has left. If this is the case, your liability policy can provide protection if you cannot determine when the danger arose or if it is impossible to hold the contractor responsible.

Can A Contractors Liability Insurance Policy Cover Injuries At My Business?

Contractors liability insurance addresses the contractor’s liability when his or her employee commits a tort, or an act of negligence that injures someone else. In the past, contractors liability insurance was part of a larger, general liability policy. Today, special policies cover contractors for the actions of their employees.

The reason that special policies are preferred over addendums to the regular liability policy is that coverage in addendums is often limited to incidents of vicarious liability or errors and omissions of third parties. 

This complicated use of insurance riders has been debated in the courts for some time, and many contractors liability insurance have concluded that it is really simpler to purchase a separate policy than to run the risk of not being covered for a particular event.

Contractors liability insurance policies cover almost every liability possible for a contractor and his or her employees. Contractors liability policies can include coverage for:

General liability. A general liability policy, as the name implies, covers almost every type of liability known to exist for the contactor and his or her employees. This means that both the contractor as an individual, the company as a whole, and employees as individuals are usually covered for actions taken in the scope of work. 

Some policies are broader and even include actions outside the scope of work, but it is important to discuss this distinction with your insurance advisor or legal representative to determine what is covered and what is not.

Medical expenses. Employers are required by law to carry workers’ compensation for their employees. However, workers’ compensation does not cover contract employees, so it is important to understand the limitations of these policies.

Instead, a separate medical expenses policy or rider may be the best way to cover yourself and your business for liability arising from an injury to a contract worker.

Errors and omissions. Errors and omissions coverage provides protection for your business if a contract employee, or one of your own employees, fails to provide a professional level of service. E&O insurance is often used in real estate and other professional businesses to protect employees from lawsuits for errors in doing their jobs.

Specialized coverage. There may be many other types of coverage that are good investments for your particular business. Every business has its own insurance needs, so it is important for business owners to understand the type and scope of insurance available for their particular fields.

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