This is one of the most common questions I am asked when preparing quotes for E&O insurance. My answer is always the same: “we must look at the policy form to see how your carrier covers Independent Contractors.” More often than not, E&O insurance coverage is usually extended to the Independent Contractors being used. However, it is important to understand the nuances behind who is covered and the impact they have on your E&O policy.
Many policy forms cover Independent Contractors only as “natural persons,” meaning there is no intent to cover other corporations outside of your own. It makes sense that other entities you are working with should have their own coverage in place, rather than relying on yours. Additionally, the IC is only covered for work they are doing on your behalf, and not for work done on their own or for others.
Almost all E&O applications now ask for information relating to your use of ICs. Although frustrating, it is important to provide an accurate representation of your Independent Contractor exposure. Here are some key things we are looking for:
- How much of your work is done by ICs rather than your company/employees?
- Are you diligent to vet your ICs?
- How much experience do they have in the industry?
- Do they have a record of any claims?
- Do they carry their own E&O insurance?
The answers to these questions can impact the eligibility and cost of your E&O insurance. The lengthy application you complete each year gives the insurance company an overview of your business operations and exposures, not that of your ICs. This is why it is important to be sure that you are thorough in screening your independent contractors. You want to be sure that your ICs are experienced professionals, worthy of the carrier extending your coverage to them. If you have further questions on how to best handle your independent contractor exposure, please don’t hesitate to give us a call and stay tuned for an upcoming webinar on this topic!