A simple and straight forward definition of a contractor – also known as an independent contractor – is an individual or business providing goods or services to another individual or business under the terms of a contract. This distinguishes the contractor from an employee in so far as the former does not work regularly for another employing business. If this definition of a contractor fits the nature of your business in some shape or form, you might wish to consider the benefits of contractors’ insurance.

One of the keys to understanding the independent contractor’s role is with reference to the contract under which he or she is providing goods or services to the client or customer. The legally enforceable contract imposes certain legal responsibilities and obligations on the contractor. If the contractor makes mistakes or errors, acting in any way that can be shown to be negligent, the terms of the contract are likely to have been breached and the contractor then has a financial responsibility for compensating the customer for those mistakes or errors.

Fortunately, claims against contractors are relatively rare, but the downside is that when a customer’s claim for damages is brought, it can be for a considerable sum in compensation. It is the availability of the customer’s recourse in law to seek damages for any financial losses your work on their behalf might have cost them that makes contractors’ insurance such a valuable safeguard for the independent contractor.

But it is not just the protection against the relatively rare event of a claim that makes such insurance attractive. Most contractors will find that potential clients and customers will require them to be covered by contractors’ insurance – the most common form of which will be professional indemnity insurance – as a condition of any contract being awarded. Contractors’ insurance in itself, therefore, will be taken as a measure of the contractor’s standing, reliability and professionalism.

Although claims may be made against you as a contractor by customers who allege that your mistake or negligence has caused them financial loss, there may also be claims based on little more than a general dissatisfaction with the service or goods you have supplied. Whilst the latter are therefore unlikely to lead to any liability on your part, your business will nevertheless be faced with the considerable legal costs, time and effort (probably to the detriment of other contracts that could have been won) in defending the claim. Contractors’ insurance will help to ensure that your business does not incur the costs of such an exercise.

Tags | Contractors insurance