Performing Work for or on behalf of your entity.

Independent contractors are utilized by individuals and businesses to perform work or provide services that are outside of the normal operating scope of the hiring or contracting entity. For construction, a business may hire a licensed electrician or other trades. For business services, professional services such as accounting, legal, information technology, etc. may be subcontracted.

It is prudent when hiring or contracting a third-party to perform work or services for the entity procuring the services to request evidence of insurance from the contractor.

The primary reasons for securing evidence of insurance from contractors are two-fold: First, contracted firms or individuals are not included for coverage under the contracting entity’s insurance. The contracted firm is a separate entity, and it is likely that the exposures for the contracted services have not been considered in the development of the insurance coverage secured by the hiring firm. Second, the hiring entity should secure assurances that if the contracted firm creates a legal liability, that the contracted firm has appropriate insurance coverage to respond.

Traditionally, a contract or service agreement is entered into between two parties. It is suggested that these contracts or agreements include: 1) Hold Harmless terms in favor of the hiring entity, 2) Indemnification terms afforded by contractor in favor of the hiring firm, and 3) Insurance provisions. Insurance provisions are included as a means of supporting or financing the indemnification agreement and to attest that the contractor is complying with any statutory insurance requirements. The insurance provisions should include Additional Insured and Waiver of Subrogation provisions, again, in favor of the hiring firm. The proof of coverage is afforded by the contractor’s insurance vendor in the form of a Certificate of Insurance. (A sample Certificate of Insurance is included.)

Coverages and limits recommended to be included under a contractor’s insurance:

General Liability (GL) – The GL should be afforded on an Occurrence Basis with occurrence limits of not less than $1,000,000 and aggregate limits of not less than $2,000,000. Endorsements to the GL should include Additional Insured and a Waiver of Subrogation.

Automobile Liability (AL) – The AL should be afforded in one of three manners: 1) “Any Auto,” 2) “Hired, Non-owned, and Owned,” or 3) “Hired and Non-owned.” Hired and Non-owned is limited to insureds that do not own or lease vehicles in the name of the policy holder. Limits should reflect at least $1,000,000 Combined Single Limits.

Workers’ Compensation (WC) – In compliance with the statutory demands of employers by the State of Michigan. Exceptions exist for sole proprietors, limited liability companies, corporations, or partnerships with no employees other than owners or members and no subcontractors. Endorsements should include a Waiver of Subrogation.

Employer’s Liability (EL) – A coverage included under a workers’ compensation policy known as Part B. A little claimed coverage that is an alternative to the exclusive remedy afforded under workers’ compensation. Limits should reflect at least $500,000 for all exposures.

Excess or Umbrella Liability (UMB) – A policy that offers limits in addition to the scheduled underlying liability policies (namely – GL, AL, and EL). With the continued increase of the amounts of legal judgements and incurred liability, it is recommended that at least $1,000,000 of UMB coverage be secured.

Definitions:

Hold Harmless – a clause where one party agrees to hold the other party harmless for any responsible for any damages or liability that may arise form a specific action of event, essentially shielding the other party from potential lawsuits related to that situation. This effectively transfers the risk from one party to another.

Indemnification – a clause where one party is bound to compensate the other party for any losses or damages that may arise from a particular event or circumstance. This affirms that the party that agreed to hold another harmless will also be responsible for costs related to defense and indemnification.

Additional Insured – An additional insured status in a liability policy extends the coverage beyond the named insured (contractor) to include other individuals or groups (hiring entities) that were not named in the original policy. Additional insured typically applies where the primary insured must provide coverage to additional parties for new risks that arise out of their connection to the named insured’s conduct or operations. Additional insured status is secured to support, in part, the commitment to indemnify others.

Wavier of Subrogation – A waiver of subrogation is a contractual provision whereby an insured’s insurance carrier waives the right to seek redress or seek compensation for losses from a negligent third party. This eliminates the possibility that the contractor’s insurance company would seek reimbursement from the hiring firm should a possibility exist that the hiring firm may have contributed to a covered loss.

Other Topics:

Professional Liability

Performance and Payment Bonds

Builder’s Risk

Installation Floaters

Bailees’ Coverage