As a small business owner, you make many decisions that directly affect many people’s well-being, from employees to customers. Sometimes, despite your best efforts, your products or services can lead to an unfortunate outcome. That’s why it’s essential to be informed about insurance: if an incident does occur, your insurance coverage can decide your business’s future.
In recent years, many small businesses have chosen to work with contract workers rather than retaining full-time employees. This labor relationship is usually good for both parties. Still, some business owners fail to consider the legal implications. When you employ contractor workers, you are still taking on a risk of liability and will likely have to answer for any incidents they cause while working for your company.
The best way to protect yourself, your company, and your contractors in such instances are to have Commercial General Liability Insurance (CGL). Alternatively, some contractors who function as small businesses themselves already carry CGL, which means you don’t have to worry about covering them. Both options have their advantages, which you must weigh before deciding on how to proceed.
About CGL
Without insurance, accidents and mistakes can have serious financial repercussions. But what is CGL insurance? Also known as Business Liability Insurance and Commercial General Liability Insurance, CGL is a comprehensive policy considered essential for all types of small businesses.
It provides coverage in cases of bodily injury, personal injury, or material damage that have been caused by your company’s operations, services or products, or that have occurred on the company’s premises.
CGL coverage can be necessary for a multitude of situations, such as:
- One of your employees causes material damage to the customer’s property when providing a service.
- A customer gets hurt because of an action by your employees or because of your services or products.
- A customer or supplier slips and falls on the wet floor on your company’s premises and is injured.
- An advertisement for your business results in defamation or libel claims.
In these and other situations in which a customer claims your business, or the actions of a contract worker employed by your business, caused bodily, property, or reputation damage, CGL can protect you by covering the following expenses:
- Medical costs resulting from an injury caused by your employee.
- Fees associated with legal actions (like attorney consultations or witness fees).
- Judgments and settlements.
Remember that some issues are not covered by CGL, and you may need other types of insurance to be 100 percent protected. You should always see what kinds of insurance coverage are legally required by the state in which your business operates.
Pros of Purchasing Your Own Policy
Having your own CGL coverage is a guarantee that you are protecting yourself and others. It’s less stressful to know that you are covered rather than having to rely on third-party insurance. As the policy-holder, you will always be in a position to manage the coverage, ask questions, and make decisions about how to proceed with filing a particular claim.
If you employ a contract worker who guarantees they carry their own CGL policy, there’s always a chance their policy might be lapsed or might not cover your company’s needs. If an incident does occur under these circumstances, it’s you and your company that will be in trouble.
Reviewing each contractor’s individual policy can also be time-consuming. If you carry your own policy, your company can work with a range of contractors without having to worry about whether your newest worker is covered or not.
Pros of Hiring Contractors Who Carry Their Own Policies
Contractors are often small business owners in their own right, having formed Sole Proprietorships for their contracting services. If they have done so, they can purchase CGL to protect themselves from claims alleging material or bodily harm when they are hired for any job.
You can save money on a CGL policy by working only with contract workers who already have their own insurance. Some states even allow business owners to go without CGL completely, as long as they can prove that all of their contractors have policies.
Know Your State’s Laws
Different states have different insurance requirements, so be sure you understand what’s required of you. In some states, contractors are required by law to carry CGL. In others, they are not. Some states require insurance coverage for contract workers in certain sectors (like construction contractors or developers). In California, for example, CGL is mandatory for virtually all contractors. Research the requirements of the law in your state to avoid surprises.
The More Protection, the Better
Commercial General Liability Insurance is the most comprehensive and essential insurance coverage that a small business can have, as it protects the business in a wide variety of situations. While it may seem more practical (and economical) to work only with contractors who already have CGL, carrying the policy yourself provides you with extra reassurance. It can also reassure customers by clarifying that they will be adequately compensated if something unexpected happens with a product or service they have purchased from your company.
