When to Ask a 1099 Contractor for Proof of General Liability Insurance
When you run a business, the moment you realize you can’t do everything by yourself anymore is exhilarating and terrifying. One the one hand, you’re succeeding! On the other, now you have to use your earnings to pay someone else.
In the technology world, it’s common to work with 1099 contractors (also called independent contractors) as you expand your business. This gives you more flexibility than hiring a full- or part-time employee and lets you adjust your team on a project-by-project basis.
But if you’ve never hired anyone before, doing so can be daunting. For one thing, your workers need to have the same liability insurance protection as you. Here’s a guide to making sure your 1099 contractors have adequate General Liability Insurance so they don’t pose a threat to your bottom line.
Why Do IT Contractors Need General Liability Insurance Protection?
As you probably know, General Liability Insurance protects your business from third-party lawsuits alleging bodily injury or property damage. In the event of such a lawsuit, your General Liability policy can cover the cost of hiring an attorney to defend your business against those claims and can even pay damages or settlements your business is found responsible for.
The story is no different for independent contractors working with you on a project.
Imagine this: a visiting client trips over a loose computer cable and falls, shattering her laptop, breaking her leg, and giving herself a concussion. Her hospital bills are tremendous and she and her lawyer decide to sue both you and your contractor (who was in the office that day and was, in fact, the one responsible for the loose cord).
If your contractor doesn’t have his own General Liability policy, you may end up being the one to pay for most of the damages, simply because your contractor doesn’t have the money. And that means a substantial claim on your policy, which can lead to higher premiums down the road.
How to Ask for General Liability Insurance from Your Contractors
The time to request that your contractors carry General Liability coverage is before you hire them. Include language in your contract that requires them to carry a General Liability Insurance policy with specific limits. (It might be a good idea to request that they carry Errors & Omissions Insurance, too).
As always when working with legal documents, it’s a good idea to consult with an attorney. He or she can help ensure that your contracts offer you maximum protection. Before signing a contract to start a project, request to see your contractor’s Certificate of Liability Insurance. This is a one-page document that summarizes the coverage offered by an insurance policy. It’s common for business partners, clients, and landlords to request this proof of coverage before entering into a formal contract.
General Liability Insurance for Employees
If your business grows to the point that you either decide to offer your contractors a fulltime job or you realize you need to seek additional full- or part-time employees, you will likely need to have a General Liability Insurance policy that covers them in addition to you. At this point, it’s a good idea to consult with your insurance agent about how to make sure you policy can keep up with your growing business.