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Employees, Subcontractors, and General Liability Insurance: Who Needs a Policy?

Employees, Subcontractors, and General Liability Insurance: Who Needs a Policy?

Monday, February 15, 2016/Categories: general-liability-insurance

Should every IT professional have General Liability Insurance? Yes and no:

  • Yes: if you’re a contractor, a consultant, a freelancer, or anyone who essentially owns his or her own business, you should carry General Liability Insurance.
  • No: if you’re the fulltime employee of another business, you probably don’t need your own policy.

On a project involving multiple parties, an insurance claim or a lawsuit can easily turn into a free-for-all, with every business scrambling to protect itself. Throw in nuances determined by contracts and insurance policies, and things can get tricky.

In this post, we’ll examine who exactly should carry insurance, and Robert Alpert, attorney with Gross McGinley (@GrossMcGinley), explains ways that you can better protect yourself when it comes to a lawsuit.

Who’s Covered by Commercial General Liability Insurance?

A General Liability Insurance policy can typically cover…

  • The policyholder (i.e., the business owner or owners).
  • Actual employees of the business (i.e., workers who receive W-2s).

This means that if you’re the one who purchases the policy for your business, you and your employees can benefit from this coverage as long they’re mentioned in the policy. Individual employees don’t have to buy their own insurance.

You can also name “additional insureds” in the policy. These are individuals or entities who may receive at least partial coverage from your insurance.

For example, if you’re contracted to develop specific code for a project, you may be asked by the business that hires you to name it as an additional insured in your policy. Think of it as the business hedging its bets. It’s willing to hire you, but if you make a mess of things, it can recoup its losses from your insurance.

The Liability Chain, or How “Everyone in the Room” Can Get Sued

Whenever there are multiple entities working on a project, be cautious. If something goes wrong, there’s the potential that a single lawsuit can start a domino-effect of other lawsuits down the so-called “liability chain.”

Imagine the following sequence of events:

  • A sports fan is injured at a stadium when he trips over loose wires that are being installed by a cable technician.
  • The fan sues the stadium to cover his medical bills.
  • The owners of the stadium then sue the general contractor who’s overseeing the technical overhaul, contending the contractor is at fault.
  • The general contractor turns around and sues the subcontracted cabling technician.

This is why everyone should be carrying a General Liability policy.

“The client would look to the general contractor as the ultimate responsibility,” says Robert Alpert. “But if the subcontractor is at fault, the general contractor would try to recover its losses from the subcontractor.”

4 Ways to Reduce Risk beyond General Liability Insurance

Alpert offers four ways both businesses and contractors can complement their General Liability policy:

  1. Make use of additional insureds. As discussed above, a business can better protect itself by asking contractors to name it as an additional insured on their policy, Alpert says. If there’s a claim and the contractor is involved, the business can use the contractor’s insurance to cover itself.
  2. Include indemnification clauses. A business can “include well-defined indemnification clauses in the contract,” Alpert suggests. This is legal language that will hold the business harmless for actions that the contractor commits.
  3. Define the scope of work. Businesses using contractors should clearly define which areas they are responsible for. “If they’re building a specific part of an app according to instructions, but didn’t design the app, they’re not responsible if the whole thing fails,” Alpert explains.
  4. Use limited liability clauses. These are clauses in the agreement that limit the amount you can be liable for or the kind of things you can be liable for.

For more advice, check out “5 Things to Check When Hiring a Subcontractor” and “General Liability Insurance Basics for Technology Contractors.”

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