4 Facts about Independent Contractors That Impact Insurance

It doesn’t matter the kind of business that I’m working with, Independent Contractors create confusion.

• Counseling Organizations will tell me “We don’t need insurance. We’re all Independent Contractors here.”
• Home Health Organizations will have a large base of people that deliver their services. 50% are paid on a W2 and 50% are paid on a 1099 basis. They will tell me, “Oh, you only need to use the payroll for employees on the workers compensation. Everyone else is a contractor.”
• Behavioral Health organizations will get very confused when contemplating the implications of their contracted psychiatrist. Are they responsible for professional liability? Or is that the contractor’s job?

In a nutshell, people think that if they contract their services with someone else, they are immediately off the hook for anything the contractor does. Which simply isn’t true.

Here are 4 insurance and risk management issues that you need to consider regarding Independent Contractors

1. Contractors need to have the financial ability to pay for their claims.

Signing a contract for someone else to do the work doesn’t mean you are extricated of responsibility for their work. If the contractor can’t pay for their damages, your organization will still be on the hook.

Here’s a claims example we experienced within our agency:

A church wanted to redo its roof. A member of the congregation said they had experience doing roof work. He didn’t have insurance, but that meant he could do the job for less money. As he was working on the roof, he caused an electrical fire that caused $400,000 of damage.

Since the roofer had no insurance, he couldn’t pay the claim. The church’s property policy had to pay the damages.

2. Just because they’re a contractor, it doesn’t mean you won’t be sued for their work

In the Health and Human Services field, contractors are used in a variety of ways.

Home Health Aides can be contracted. Behavioral health programs will contract with psychiatrists for intensive mental health work. Substance Use Disorder programs will contract with a medical doctor to conduct intakes.

Just because you have a signed contract and insurance from the person, it doesn’t mean you’re off the hook.

When people file lawsuits, they throw spaghetti against the wall. They’ll list the individual, the organization, and everyone involved in the process. Then they’ll start looking for who has the deepest pockets to pay for damages.

If you contracted with a person to do work, and the client views you as being involved in the process, you are going to end up being involved in the lawsuit.

3. The way your contract is written will determine who pays

Your contract will define what happens when a lawsuit occurs.

It will define who pays for the attorney. It will define who pays first. It will also define who is responsible for the settlement.

If your contract is silent on these issues, the contractual relationship will not provide the protection that you want.

Insurance companies want to make sure that you have the following clauses in your contracts:
• Stipulations on Insurance limits
• Hold Harmless Agreements
• Waiver of Subrogation.
Make sure you have an attorney review your contracts.

4. Just because they’re a contractor, it doesn’t mean that you don’t have compliance issues

This issue comes up a lot, especially as it pertains to Workers Compensation and Employment Law.

Just because you pay someone on a 1099, they might still be entitled to the benefits of an employee. It all comes down to employment law in your state.

In the situation of Workers Compensation, you may be responsible for on-the-job injuries, especially if you can’t prove they are an Independent Contractor. The state doesn’t want to pay for medical bills. If there is a way to make you pay for the injury, they will make you do it.

In the situation of employment law, there may be wage and hour laws that you are required to comply with.

Independent Contractors create a lot of confusion. I deal with these misunderstandings on almost a weekly basis. It’s important to make sure that you set up the appropriate contractual relationships with each individual.

Note: this article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.