What Insurance should a hired contractor have?

 (Equipter,2024)

What Insurance should a hired contractor have?

To be adequately Protect, insurance company have to consider below policies .this acoording to the Dax Kastrin (2024)   

l   General Liability Insurance- This type of insurance covers property damage and bodily injury that may occur due to the contractor's work

l   Workers' Compensation Insurance- If a contractor is injured while working on your property, workers' compensation insurance would cover their medical bills and lost wages. This type of insurance is required in most states, so confirm that your contractor has it before hiring them. 

l   Professional Liability Insurance- Also known as errors and omissions insurance, this type of coverage protects contractors from being held liable for mistakes made during their work. 

l   Business Owner's Policy- A business owner's policy (BOP) is a type of insurance that bundles together various types of coverage, including general liability, property damage, and business interruption. This can be a good option for contractors who want comprehensive protection. 

l   Business Auto Insurance- If a contractor uses a vehicle for business purposes, they must have business auto insurance. This type of insurance covers damages caused by the vehicle and any injuries that occur as a result of a car accident.

l   Bonding- This is not insurance but another type of protection that contractors can have. A bond is a financial guarantee that a contractor will complete their work as agreed. If the contractor does not complete the job or causes damage, the customer can make a claim against the bond to recoup their losses.

( Kastrin ,2024 )

 

According to Austin Lands (2020) have 4 insurance coverage to consider.

l   Workers Compensation- Hiring a contractor without workers comp insurance could leave you paying an injured employee or subcontractor’s medical bills indefinitely, just for hiring someone to fix your property.

l   General Liability ( With Product And Completed Operation) - Without this coverage, you would most likely not be able to collect any money for your medical bills and you could be personally liable for your guests’ injuries. Additionally, if you are a homeowner, unless you purchased an umbrella policy, your homeowner liability limits are probably not high enough to cover the incident.

l   Auto Liability- Auto liability is overlooked coverage by many homeowners and business owners hiring contractors. Some contractors aren’t large enough to justify a fleet of work trucks, and some projects do not require this coverage. Look over your particular project to decide if auto liability is something you should add to your contractor requirements.

( Landes 2020 )

 

The two types of insurance for contractors and sub-contractors according to the Norton S.,(2020) that is public liability insurance and professional indemnity insurance.

Public liability insurance for contractors

Public liability insurance is the first one out of the two types of crucial insurance for contractors. It covers damage to property and personal injury to other people. Here are some examples:

·       Damage or loss of goods

·       The employees of a contractor

·       Third-party injuries

·       Legal costs of a claim

 

Professional indemnity insurance for contractors

Professional indemnity insurance covers the business owner for legal liability relating to advice or services offered to clients. All contractors offering advice against a fee need professional indemnity insurance. Examples of contractors who can benefit from professional indemnity insurance include:

·       Graphic designers

·       IT consultants

·       Project managers

·       Business coaches and advisors

·       And more.

(Norton ,2020)

 

With variety of reasons. Depending on the type of work you do, you may need liability insurance and omissions insurance, or both. Learning more about different types of insurance, what it does, and the risks of going without can help you to protect your business and ensure that clients can hire you with confidence. In addition to liability insurance, an independent contractor may need other forms of insurance and omissions insurance.

 

Liability Insurance

·          Bodily injury caused to someone else (who is not your employee)

·          Slip and fall accidents

·          Copyright infringement

·          Product liability

·          Slander and libel

·          Property damage

 

Omissions Insurance

While general liability insurance offers comprehensive coverage for many situations, it does not offer coverage for alleged professional negligence. You will need errors and omissions insurance for that.

Just like the contractors who work with physical equipment and interact with clients in homes, work settings, and other locations, an independent contractor who provides advice could be held liable if something goes wrong. Errors and omissions insurance (E&O) is ideal for accountants, interior designers, financial planners, and other independent contractors who serve in an advisory or consultant capacity. If the client experiences damage or losses due to your advice and they sue you, this type of coverage will pay the damages and your legal expenses.

 

Independent Contractors Need Insurance?

Most independent contractors need some form of insurance. Some require additional specialty insurance in addition to liability and errors and omissions coverage. In general, the following types of contractors need some type of insurance to protect themselves, to work legally in some locations, and to give clients peace of mind:

·          Construction contractors of all types

·          Plumbers, electricians, carpenters, and painters

·          Handymen and repair contractors

·          Home, business, and carpet cleaners

·          Artists including graphic designers, product designers, writers, and more

·          Dog walkers, groomers, trainers, and sitters

·          Other animal trainers

(Nature .,2024)

 

 

(Brown ,2023)

The Six Types of Insurance following mention as per the Brown J.,(2023)

(Brown ,2023)

 General Liability Insurance - If your company is deemed legally responsible for bodily injuries or damages to client property, you should expect to bear the financial costs associated with those incidents. General liability coverage protects you in such cases, as it transfers the costs associated with these claims away from your business and to the insurer.

(Brown ,2023)

 Worker’s compensation Insurance - Worker’s compensation insurance offers benefits and protections for workers injured on the job. Their medical expenses and their wages are covered by this kind of insurance.

In the construction industry, an accident can place your employees at a very high risk of hospitalization. During this time, they are incapable of working hence no income. With a worker’s compensation policy their medical bills and a portion of their will be paid.

 

(Brown ,2023)

Commercial Auto Insurance - The insurance coverage we have spoken of thus far protects third-party property for the most part. Commercial auto, however, focuses on the automotive property of the insured itself.

While this is not specific to contractors, it is a very important policy for contractors who need to use vehicles to transport tools and employees as part of their project. If in the course of construction you use vehicles, these vehicles have to be commercially insured.

 

(Brown ,2023)

Inland Marine Insurance - lnland Marine insurance is designed to protect contractors’ property. Damages to your property, plus loss of tools and other working materials, will be compensated by Inland Marine Insurance.

(Brown ,2023)

 

Professional Liability - This type of insurance is mostly used by consultants, architects, and design and build contractors to protect themselves against claims made by clients.

Contractors who do this work alongside their work in the trade, need to take on this policy to obtain full coverage in regards to customer dissatisfaction, design flaws, and failure to properly execute plans. A professional liability policy also covers you against negligence on your part while undertaking your duties. Let’s say that a contractor paints on a wet wall. Within minutes, the paint starts to peel off.

 

(Brown ,2023)

Umbrella Insurance - Umbrella insurance is simply additional liability insurance that works by providing Insurance beyond the limits of your other liability policy limits. It is sold in increments of $1 million.

(Brown ,2023)

 Conclusions

There is great financial risk in hiring an uninsured contractor, including litigation. Besides, there are legal risks at play. We’ve all seen news stories on businesses getting sued for millions of dollars! Not to talk about the risk to your reputation if an accident or injury were to occur without insurance cover.

There may also be other types of insurance that are relevant to a contractor, such as insurance against loss of income. However, public liability and professional indemnity are the most crucial.

 References

Brown J.,(2023), The 6 Types of Insurance General Contractors Must Have (Online)
Available at : https://contractorsliability.com/blog/the-six-types-of-insurance-general-contractors-must-have/ [Accessed on 7th April 2024]

Equipter,(2024),What Types of Insurance Should a Contractor Have? (Online)
Available at : https://www.equipter.com/equipter-articles/contactor-insurance  [Accessed on 9th April 2024]

Kastrin D.,(2024), What insurance should a hired Contractor have (Online)
Available at : https://www.erm-ins.com/hiring-a-contractor-without-insurance-what-are-the-risks [Accessed on 26th march 2024]
Landes A., (2020) ,Hiring a Contractor Without Insurance – What are the Risks ? (Online)
Available at : https://www.landesblosch.com/blog/hiring-a-contractor-without-insurance-what-are-the-risks [Accessed on 26th march 2024]

Nature L.,(2024), Do Independent Contractors Need Insurance? (Online)
Available at : https://www.legalnature.com/guides/do-independent-contractors-need-insurance [Accessed on 7th April 2024]            
Norton S.,(2020), What Insurance Do Contractors and Subcontractors Need? (Online)
Available at : https://nortonandco.com.au/how-much-does-what-insurance-do-contractors-and-subcontractors-need/ [Accessed on 7th April 2024]
        

Avoid the risks of hiring subcontractors

 (Hartley ,2023),

Avoid the risks of hiring subcontractors

 

The most frequent risks faced by the hiring company are:

·       Fiscal and labor risks;

·       Accidents on the job site;

·       Delays in project execution and surpassing the project budget;

·       Risk of receiving a product of low quality/durability; and

·       Risk of not receiving a warranty from the contractors.

According to the Choma, Augusto A.,(2008) can identify and suggest four steps that can help a project manager with the efficient management of contractors:

Contract planning– Take the Time to do it Right,

Contractor selection– Use Your Planned Criteria,

Contract administration– REALLY be in Control

Corrective actions– Take Actions Based on Trustworthy Data.

(Choma,& Augusto ,2008)

When y consider to reduced risk of hiring companies & y need implementing the following measures as per the Hartley ,(2023) .

1. Verification of insurance coverage and liability limits.

2. Clear and comprehensive contracts with well-defined obligations and indemnification clauses.

3. Thorough due diligence when selecting subcontractors, including reference checks and qualification assessments.

4. Regular quality control checks to ensure workmanship meets established standards.

5. Collaboration with subcontractors on safety protocols and monitoring their compliance with safety regulations.

(Hartley ,2023)

 

 (Ferrell ,2024)

Working with contractors always involves some risk, but same steps you can take to reduce

Carrying out all processes and operations in-house is not a reality for many companies.

For many companies, this is no longer the case. Businesses big and small rely on contractors to assist their in-house teams, even in dangerous tasks such as construction and electrical work.

Contractors aren't going away. But relying on outside help can expose you to additional risks. Unlike your employees, they're not familiar with the hazards in your workplace or the procedures for dealing with them. And although the fault doesn't always fall on their shoulders, it is the company hiring the contractor that is responsible for their safety.

 

1. Vet Contractors Before Hiring

Start by making a shortlist of contractors you're thinking of hiring and vet them thoroughly.

The vetting process should include

• Completing a background check
• Checking in with previous clients or employers
• Evaluate credentials

 

Give a lot of weight to word of mouth from previous companies. Some contractors will look great on paper but have a poor client satisfaction record. Likewise, a contractor with little experience might do an excellent job. The only way to really find out (besides hiring them yourself) is to ask around.

Vetting contractors might seem like too much work when you're only hiring someone for a short time-frame. After all, why go through all this trouble when you only need someone to come in for one day?

 

2. Substance Testing

Once you've decided on a contractor and vetted them, you should also ask them to undergo a drug and alcohol test.

A large number of workplace accidents can be attributed to employee or contractor error, and drug and alcohol use increases the likelihood of these incidents occurring. With almost one quarter of Americans admitting to drinking during the workday and 70% of illegal drug users being employed, it's not worth taking a chance. You won't reduce your risk of incident to zero by testing contractors, but you will make sure that they come to work clear-headed.

 

3. Draft Safety Policies with Contractors in Mind

Safety policies are usually drafted for permanent and full-time employees. That might not make it an ideal document for short-term contractors.

When drafting your safety policy, be sure to include a section dealing with contractors and how to handle them coming onto the worksite. Consider making a shorter document or fact sheet specifically to be distributed to contractors, highlighting the important safety processes and procedures they will need to be mindful of when working for you.

 

4. Training Sessions and Workshops

Proper training is one of the best ways to ensure worker safety. Unfortunately, contractors coming in haven't sat in on the same training sessions as your full-time employees. While they might have undergone some kind of safety training in the past, they aren't likely to be familiar with the ins and outs of the hazards in your particular industry or workplace.

Involving contractors in safety training doesn't always occur to employers, but it is feasible. If you're working with a contractor over an extended period of time, you could have them participate in the training sessions the way any new employee would. Online training makes this much simpler.

If you're having a number of contractors coming in for short-term work, you could also put together a safety workshop for them. These would not be as elaborate as full-scale training sessions, but they could be streamlined to cover the most essential subjects.

 

1.    Draw Up a Contract

An airtight agreement drafted between the company the contractors who work for it will protect everyone involved.

The contract should spell out which party will be responsible in the event of accidents and injuries. It should also incorporate penalties if contractors are found to have made errors or failed to meet their responsibilities and obligations. Negative incentives, such as fines or discounted payments, can be an effective way of improving contractor performance and ensuring their safe conduct in your workplace

 

2.    Evaluate Insurance Policies

Insurance won't prevent accidents or stop anyone from getting hurt. But it will make sure the financial consequences of those incidents don't get out of hand.

Review your own company's policies to make sure you have the right amount of protection you need in case a contractor commits an error, causes harm, or is injured while working on your behalf. Verify the contractor's insurance as well, and make sure it's adequate. Make sure the policies have enough coverage so that even the worst scenarios won't drain your company's bank account (learn The Truth About Certificates of Insurance).

(Wiggins ,2018)

 

There are certain things have to do mitigate or eliminate the risks associated with independent contractors according to the Barraza A.,(2024) as below.

 

1.      Take accountability for learning.- Ignorance is never a legal excuse for disregarding independent contractor labor laws. It’s critical that you always proactively understand independent contractor-related IRS guidelines and state legislation. By taking the time to educate yourself, you’ll not only protect your business, but also ensure a smoother working.

 

2.      Establish a strong vendor partnership.- Partnering with a reliable vendor that specializes in contingent workforce solutions can help you sidestep potential pitfalls. Lean on the vendor’s expertise for smoother navigation. A strong partnership can save time and reduce stress, allowing you to focus on your central business objectives.

 

3.      Reflect on the decision-making process.- Before engaging independent contractors, it’s important to identify your motives. Are you basing your decision on federal requirements, or are you just trying to justify your business needs or interests? In every case, it’s necessary to follow the law, not just your needs or opinions. Keeping this in mind can save you from future complications and legal consequences.

(Barraza ,2024)

 

References

Barraza A.,(2024) , How to Avoid Key Risks When Engaging Independent Contractors (online)

Available at : https://www.linkedin.com/pulse/how-avoid-key-risks-when-engaging-independent-eiese trk=public_post  [Accessed on 6^th April 2024]

Choma, Augusto A.,(2008), How to reduce risks in contractors' management (online)
Available at : https://www.pmi.org/learning/library/reduce-risks-contractors-management-6985 [Accessed on 25th march 2024]
Hartley B.,(2023), Understanding the Risks of Hiring Subcontractors on Your Insurance (Online)
Available at : https://www.linkedin.com/pulse/understanding-risks-hiring-subcontractors-your-bixby-hartley [Accessed on 25th march 2024]
Hartley B.(2023),Understanding the Risks of Hiring Subcontractors on Your Insurance  (online)
Available at : https://www.linkedin.com/pulse/understanding-risks-hiring-subcontractors-your-bixby-hartley [Accessed on 9th  April 2024]
Ferrell J.(2024),Subcontractor Prequalification: A Vital Step in Construction Industry Success  (online)
Available at :https://www.constrafor.com/the-build-up/subcontractor-prequalification-a-vital-step-in-construction-industry-success [Accessed on 9th  April 2024]

Wiggins P.,(2018), 6 Ways to Minimize Your Risks When Hiring a Contractor
Available at : https://www.safeopedia.com/6-ways-to-minimize-your-risks-when-hiring-a-contractor/2/6706 [Accessed on 7th April 2024