As a tech business owner, you know that requiring contractors to carry their own insurance can save you some serious financial hurt if a project takes an unexpected turn. And if you're the contractor in question, you might need contractor liability insurance to land clients, but your coverage can also protect your growing business. Here are the three policies that can potentially benefit tech business owners and tech contractors alike.
1. General Liability Insurance
A solid liability foundation for any tech contractor or business owner often starts with a General Liability Insurance policy. This is one of the first policies many contractors or small IT business owners purchase because it can help pay for legal issues related to:
- Third-party bodily injuries.
- Damage to third-party property.
- Advertising injuries, including slander or libel.
“I have seen savings by requiring my contractors to carry their own insurance,” says
president and founder of
3D Scan Experts
(@3dscanexperts). “As there is no effective way to monitor contractor insurance is active, I also carry a portion of General Liability Insurance to ensure I am covered.”
Here are a few other reasons to consider General Liability Insurance:
- Your clients might require it.
- It might be a condition of your business’s lease if you rent commercial space.
- If you work from a home-based office, your Homeowner’s Insurance usually doesn't cover business-related claims.
- If you work as a contractor, the companies you freelance for may require it.
2. Errors and Omissions Insurance
Any time you provide services for a client, you could potentially be sued if something goes wrong. For example, a client might sue if…
- You didn’t deliver the work as promised.
- Your work was late, sloppy, or incomplete.
- The relationship sours for some reason.
That's why many small IT business owners purchase Errors and Omissions Insurance, also known as Professional Liability Insurance, which can address lawsuits over your work and help cover legal costs, such as…
- Attorney fees.
- Court costs.
- Judgments or settlements.
“A small-business owner should purchase Professional Liability Insurance to help them stay in business,” says
Harrington, Ocko & Monk, LLP
(@hom_legal). “A business owner can face exposure for the goods or services provided to any third-party which allegedly causes harm to the third party. The right coverage could afford you a legal defense at reduced costs, pay covered legal damages, and tangentially provide a source of advice to help limit exposure in the future.”
Even if you didn’t do anything wrong, a customer could still sue you. Maybe they think you didn’t deliver the work you promised (even though you totally did!). Or maybe they are simply trying to weasel out of paying their bill. These types of lawsuits are often dismissed because they lack legal merit, but that doesn't mean it won't cost you.
“A small business could literally be put out of business if forced to defend lawsuits,” says Cintron. “Even a ‘frivolous’ lawsuit could cost a small-business owner a few thousand dollars in legal fees which may not be recouped. An average malpractice lawsuit could take several years to litigate, and depending on the complexities of the legal issues, legal costs and expenses could range between $30,000 to $100,000 – or more.”
Sometimes when a project really goes south, a disgruntled client might sue everybody who worked on it, including your business and its contractors. That chain of liability is why tech businesses should require any contractors they hire to have their own E&O Insurance.
If you're a contractor, you may want to consider purchasing a policy to protect yourself and your assets.
3. Workers’ Compensation Insurance
Whether or not you need to purchase Workers’ Compensation Insurance depends on the laws in the state where you do business. For example…
- In Florida, your tech business may not need to obtain coverage until you have four or more employees (business owners are included in that count).
- By contrast, almost every employer in New York is required to provide Workers’ Compensation Insurance coverage for employees.
- Then there’s Texas, where Workers’ Compensation is optional for employers.
Whether or not you're required to carry Workers’ Compensation Insurance, it can still benefit you, even if you are a sole proprietor.
“There are a couple of reasons that a sole proprietor should consider obtaining a Workers’ Compensation policy,” says
Ken Gauvey (@GauveyLaw), an
attorney specializing in employment law and labor litigation and the owner of
The Law Practice of Ken C. Gauvey.
“If the sole proprietor is injured on the job, the policy offsets medical bills and provides some wage relief while recovering from the injury.”
If you hire contractors on the regular, it would be wise to check with your business attorney to verify that they are truly considered contractors, not employees, in your state. Otherwise, you may find yourself facing some significant fines for not obtaining Workers’ Comp coverage.
“Workers’ Compensation laws typically have their own definitions for reviewing independent contractor status that typically lean heavily toward the workers,” says Gauvey. “If an independent contractor is determined, at some time after an injury, to be an employee, the sole proprietor can face significant financial penalties for not having a Workers’ Compensation policy, in addition to having to refund the state Workers’ Compensation fund.”
Contractors, learn more about obtaining your own coverage in "How to Secure Workers' Compensation Insurance as a Technology Contractor."
About the Contributors
Melissa Cintron is a partner in the insurance defense and corporate and real estate practice groups at Harrington, Ocko & Monk, LLP. Melissa is responsible for all aspects of litigation in a wide variety of civil matters, including insurance coverage disputes, intellectual property disputes, subrogation actions, professional malpractice, property damage, construction claims, and discrimination matters.
Ken C. Gauvey is a Maryland business attorney and founder and owner of The Law Practice of Ken C. Gauvey. His background is in employment law, construction, and labor litigation. He has extensive experience in immigration matters and received awards for his work in both 2013 and 2014.
Jesse Tutt is an accomplished, high-performance, effective senior IT leader and entrepreneur. Jesse is the president and founder of 3D Scan Experts Ltd., the largest and most trusted 3D Virtual Tour (hotel virtual tours, oil & gas virtual tours, insurance virtual tours, real estate virtual tours, and commercial virtual tours) provider. Jesse has been featured on Global TV, Shaw TV, Breakfast TV, the Edmonton Journal, Fortune, Red Deer Advocate, Metro Magazine, St. Albert Gazette, Maclean's Magazine, and NAIT Techlife Magazine.