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The Business Owner’s Guide to Contractor Liability

Outsourcing: the cost effective, efficient way to get difficult tasks done properly, on time and within a set budget. But whether you’re hiring a chemical waste transportation company or someone to landscape your property, there’s a level of risk associated with hiring third-party vendors that raises several questions. Do your vendors need their own insurance? Do you need insurance to cover your vendors? What about workers’ compensation?

When hiring vendors, your duty is to ensure that both your business and the contracted company have the proper coverage required by local laws—and it’s always better to be safe than sorry.

Your requirements for contractor insurance

Mistakes happen. Imagine that you have hired a company to lay foundation for a new building and a year later the foundation cracks, resulting in a small flood and structural damage to the property. You’re going to need to pay to fix that damage, which is why it’s important to hire contractors that are insured. When mistakes happen, you can recover the cost of fixing the error by suing the contractor. If the company is insured, the damage should be covered, and you won’t end up paying for the wrongdoing.
The type of insurance you require for your contractors will vary depending on the jobsite, the equipment used and the nature of the work. But typically, you can expect your contractors to carry:
  • General Liability Insurance: This will cover accidents including physical injury, property damage, or even product liability coverage for special circumstances.
  • Professional Liability Insurance: This type of insurance covers errors that contractors may make when providing professional services.

  • How to verify a vendor’s insurance

    Asking a contractor for their insurance certificate doesn’t need to be an awkward conversation. But if the contractor does push back, simply explain that your insurance provider or legal team require you to check their coverage before hiring them. If they really are covered, its easy for them to download or print off a certificate online—insurance companies ensure its an easy process.

    Once you have received the document, verify it by checking the commencement and expiration dates, the policy limits, the type of insurance, the named insured and additional insured information and the province or state that the certificate was issued in. If you’re still unsure of the validity of a certificate, give the insurance company a call to play it safe.

    Workers’ Compensation for contractors

    Workers’ Compensation is a grey area because the rules vary by state and by province. Regardless, you should ensure that your contractors are either covered by their company or if they are independent contractors, that they have their own coverage. In some rare cases, such as hiring temporary workers from staffing agencies or hiring an independent contractor for an extended period, you may be required to provide workers’ compensation coverage for them.

    If you live in the United States, use this online tool for a detailed breakdown of Workers’ Compensation laws by state. If you live in Canada, you can find a list of provincial workers compensation websites here.

    How to save time and money with outsourced contractor management

    If your business works with various contractors and you’re looking to reduce internal time spent verifying and tracking documents, consider automating your compliance process. At ComplyWorks, we offer an easy-to-use, scalable and affordable web-based solution that will allow you to prequalify your contractors and maintain vendor compliance in just a few simple steps. Learn more by completing a free demo of our Contractor Management Solution (CMS) today.