Sunday, January 25, 2009

Insuring against Independent Contractor Exposure

The hiring of an independent contractor carries with it unique risks of legal liability. If the contractor's employee is injured on the job, he or she is entitled to workers' compensation from the contractor but may also bring a common law claim against the principal (the party who hired the contractor). This claim against the principal may be premised on three theories: The principal itself was at fault; the contractor's fault implicates the principal's liability (the principal is vicariously liable); or the principal is strictly liable under a safe workplace statute.

A fault-based theory of liability may include allegations that the principal directed the contractor to perform work in a certain manner, with disastrous results. However, much of the principal's exposure arising out of its employment of the contractor is vicarious in the broad sense based on a theory of inherently dangerous work or violation of a safe workplace statute. Many times the distinction between fault-based and vicarious liability is fuzzy at best, as in claims of negligent hiring or negligent supervision.

While these exposures are covered by general liability insurance, the principal would rather not deplete its own liability coverage for risks ultimately premised on the contractor's own negligence. The principal may attempt to shift the cost of these risks back onto the contractor through use of broad indemnity or hold harmless agreements. These agreements have two fundamental weaknesses: (1) The contractor may become bankrupt or otherwise lack the financial means to pay, and (2) enforcement of the agreement may be limited by statute or judicial decision.

Accordingly, the principal may wish to back up the promises contained in the indemnity agreement with insurance coverage. The principal has a variety of ways to shift the insurance coverage for independent contractor exposure from itself to the contractor.

1 comment:

  1. Thanks for a good info. it's really a serious question, because one can save or lose on his insurance package.


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