Liability, however, flows upstream. If the contractor has insufficient funds or insurance, the liability transfers to the engaging company.
The engaging company must require certificates of insurance (proof of insurance) from the independent contractor. Workers’ compensation, automobile liability and general liability are often required.
Some companies charge a percentage of the contract if insurance is not in place. This policy is flawed.
1. Injuries incurred under workers’ compensation affect your experience modification for three
years. You will pay for your contractors claim for three years.
2. General liability and automobile coverage use experience rating as well.
3. Your capacity to obtain insurance may be limited with the use of under- or un-insured.
What can you do to cure some of these issues?
Ask for a certificate of insurance for umbrella liability. Umbrella broadens underlying coverage, assures primary limits which are adequate, and acts as primary insurance for unusual claims.
Require contractor principles to be insured by workers’ compensation – have them opt in.
Verify all information with a phone call to the agent’s office or insurance company. This technique may sound a bit untrusting, but the financial health and ability to obtain insurance of your company demands thorough verification.
Independent contractors by definition are independent. You cannot control their employees or them. Demand verifiable certificates of insurance or do not allow the contractor to work for you.
Do not accept the transfer of risks from your subcontractors or independents to you. The long-term costs to your company can be devastating.