Liability Issues for Acts of an Independent Contractor

What happens if an independent contractor you hired causes damage or injury—are you responsible?

It is easy to assume that hiring independent contractors shields you from liability. After all, they’re not employees. But you could still be held liable for their actions in certain situations.

Understanding when the liability of an independent contractor falls on your business is critical to avoiding legal disputes, financial losses, and reputational damage.

In this article, you’ll learn:

• When businesses are liable for independent contractors.
• Key legal principles like respondeat superior and vicarious liability.
• How to minimize risks through proper contracts and insurance coverage.

Understanding Liability for Independent Contractors

‍Independent contractors represent a significant portion of the workforce in the United States, with 6.9% of total employment consisting of independent contractors.

Hiring an independent contractor doesn’t always mean your business is free from liability. Hence, it’s essential to understand key legal principles and how liability differs between employees and contractors.

‍Respondeat Superior: Does It Apply to Independent Contractors?

‍Under the legal doctrine of respondeat superior, you are responsible for the wrongful acts of your employees if these acts take place within the scope of employment. However, this principle does not typically apply to independent contractors because they operate as separate entities.

‍Example: If your employee causes property damage while working on-site, your business is liable. If an independent contractor does the same, liability may or may not fall on you—depending on certain legal factors.

‍Key Differences: Employees vs. Independent ContractorsLet’s understand the key factors that differentiate employees from independent contractors in the following table:

If a business exerts too much control over an independent contractor, courts may classify them as employees, increasing liability risks.

‍When Is an Independent Contractor Really Independent?

‍Courts and regulatory agencies use various tests to determine the status of a worker as an independent contractor. Some of the most common include:

• IRS 20-Factor Test – Evaluates control, independence, and financial arrangements.
• Economic Realities Test – Focuses on financial dependence on the hiring party.
• Right-to-Control Test – Determines the hiring party's authority over the work process.

Even if a business follows best practices when hiring independent contractors, liability can still arise under certain legal doctrines. One of the most important factors is to understand is vicarious liability—and knowing how to defend against it is crucial.

‍Understanding Vicarious Liability and Legal Defenses

‍Even if a business hires an independent contractor, it may still be held legally responsible for the contractor’s actions under vicarious liability. Let’s understand this legal doctrine in detail.

‍What is Vicarious Liability?

‍Vicarious liability occurs when a business is held responsible for an independent contractor’s actions, even without direct involvement. This applies when:

• The business retains control over the contractor’s work.
• The contractor’s work affects public safety or regulatory compliance.
• The business engages in high-risk or inherently dangerous activities.

Common Legal Defenses Against Liability

• Lack of Control – Showing that the contractor had complete independence in performing their work.
• Proper Due Diligence – Demonstrating that the business took reasonable steps to hire a qualified and responsible contractor.
• Contractual Indemnification – Using contracts to shift liability to the contractor through indemnity clauses.
• Adequate Insurance Coverage – Ensuring the contractor carries liability insurance to cover potential claims.

In the next section, let’s break down the general rule—and the key exceptions that could leave your business exposed to independent contractor liability issues.

General Rule and Exceptions in Liability of an Independent Contractor

‍The general legal principle is that an independent contractor operates as a separate entity, responsible for their own work and any resulting harm. Courts generally follow this rule because:

• Independent contractors control their own work.
• The hiring business does not directly supervise or dictate their methods.
• Contractors are responsible for their own insurance and liability coverage.

While businesses are generally not liable for the actions of independent contractors, specific legal exceptions can impose responsibility. These exceptions are especially relevant in construction, maritime, and oil and gas industries, where high-risk activities are common.

‍1. Retained Control Over Work

‍If a business maintains significant control over how an independent contractor performs their work, it may be held liable for any resulting harm. Courts look at factors such as:

• Direct supervision of the contractor’s tasks.
• Requiring specific methods or procedures.
• Controlling the contractor’s schedule and day-to-day activities.

Example: A construction company hires an independent contractor to operate heavy machinery but dictates exactly how and when tasks must be completed. If an accident occurs due to these instructions, the hiring company may share liability.

‍2. Negligent Hiring or Supervision

‍A business can be held liable if it fails to properly vet or oversee an independent contractor, especially when hiring for high-risk jobs. You must ensure that the contractor:

• Has the necessary licenses and certifications.
• Has a history of safe work practices.
• Meets industry and legal compliance standards.

Example: A pipeline operator hires a contractor with a history of safety violations. If the contractor causes an oil spill due to negligence, the hiring company could be sued for not conducting adequate background checks.

‍3. Non-Delegable Duties

‍Certain legal responsibilities cannot be transferred to an independent contractor. These are non-delegable duties, requiring businesses to ensure tasks are performed safely and correctly.

Examples of non-delegable duties include:

• Ensuring compliance with workplace safety regulations.
• Maintaining a hazard-free environment for employees and the public.
• Adhering to environmental protection laws in oil and gas operations.

Example: A port operator hires a contractor to repair a dock but fails to ensure proper safety measures. The port operator may still be liable if workplace injuries take place due to unsafe conditions.

‍4. Inherently Dangerous Activities

‍If an independent contractor causes harm while performing an inherently dangerous job, the business that hired them may share responsibility. Courts generally consider an activity inherently dangerous if:

• There is a high probability of injury, death, or environmental harm if precautions fail.
• The activity requires specialized skills and safety measures to prevent accidents.
• The danger is built into the nature of the work, not just due to poor execution.

Examples: Demolition projects that involve explosives and oil refinery maintenance where workers are exposed to toxic chemicals are considered inherently dangerous.

‍5. Liability in Subcontracting Chains

‍In industries with multiple layers of subcontracting, liability can extend beyond the direct hiring party. A general contractor may still be liable if a subcontractor:

• Fails to follow proper safety protocols.
• Uses unqualified workers for high-risk tasks.
• Violates industry regulations, resulting in harm or damages.

Example: An offshore drilling company hires a subcontractor for pipeline installation. If the subcontractor cuts corners and causes a major spill, the drilling company could face liability for failing to enforce safety standards.

Understanding liability is the first step—securing the right coverage is next. Talk to our experts at TWFG Khan Insurance about customized policies for your industry.

Next, we will discuss how businesses can determine the employment status of contractors and why misclassification poses serious risks. 

‍Criteria for Determining Employment Status and Liability Risk

‍Misclassifying an independent contractor can have significant economic costs. When workers are misclassified as independent contractors, they miss out on benefits typically offered to employees, such as healthcare, retirement plans, and job security. For example, a typical construction worker misclassified as an independent contractor misses out $16,729 per year in income and job benefits.

‍Key Factors That Influence Liability

‍The level of control a business has over a worker is the most important factor in determining liability. The following questions help assess a worker’s true classification:

• Who controls how the work is done: If the business dictates methods, work schedules, and tools used, the worker may be classified as an employee rather than an independent contractor.
• Is the worker essential to core business operations: If the task is integral to business functions (e.g., ongoing construction management), liability risks increase.
• Who is responsible for risk and financial investment: Independent contractors generally provide their own insurance, tools, and workspaces. If a business supplies all resources, it could indicate an employer-employee relationship.

Legal Consequences of Misclassification

‍Misclassifying an independent contractor can lead to the following:

• Liability for workplace injuries – You may be responsible for workers’ compensation claims if a contractor is later deemed an employee.
• Employment tax penalties – If a misclassification ruling is made, you may owe back payroll taxes, unemployment insurance, and benefits.
• Contractual disputes – Legal challenges could arise if a worker expected contractor status but was controlled like an employee.

Risk Mitigation Strategies

‍To reduce misclassification risks and liability exposure:

• Draft detailed contracts that specify the worker’s independent status, responsibilities, and insurance requirements.
• Require contractors to carry their own liability insurance to shift risk away from your business.

Not sure if your contractor’s insurance is enough? We help businesses verify coverage and close liability gaps. Talk to an expert at TWFG Khan Insurance today.

Next, we will discuss how insurance plays a critical role in managing contractor-related risks.

‍Role of Insurance in Managing Contractor-Related Risks

‍Insurance plays a critical role in protecting your business from liability claims arising from independent contractors' actions.

‍Essential Insurance Policies for Independent Contractor Risks

• General Liability Insurance – Many businesses assume that independent contractors carry their own liability coverage. However, without proper verification, a single contractor-related accident could expose your business to lawsuits and financial losses. General liability insurance safeguards you from such risks.
• Professional Liability Insurance – This policy is especially crucial for consultants, engineers, and designers as it covers errors, omissions, or professional negligence claims. These risks often lead to costly legal disputes, even if the contractor follows best practices.
• Umbrella & Excess Liability Insurance – Liability caps in standard policies often fall short in high-risk industries where claims can reach millions in damages. This coverage acts as a financial safety net, ensuring that large claims don’t drain your business assets.
• Workers’ Compensation Insurance – If an independent contractor’s employee gets injured on-site and lacks proper coverage, your business could be held responsible under certain state laws. Verifying workers' compensation coverage helps prevent unexpected legal and medical cost burdens.
• Environmental & Pollution Liability Insurance – Many businesses assume general liability covers environmental hazards, but most policies exclude pollution-related incidents. In industries handling hazardous waste, chemicals, or offshore drilling, this coverage is critical for compliance and financial protection.

Why Businesses Should Require Contractor Insurance

• Shifts financial responsibility to the contractor in case of legal claims.
• Ensures regulatory compliance in industries with strict liability requirements.
• Reduces direct liability exposure by covering potential damages or injuries.

Take Help From an Insurance Expert

‍Your business can significantly benefit from using the services of an experienced insurance agent like TWFG Khan Insurance to get the best possible coverage.

• Provides custom-tailored insurance solutions for businesses in maritime, oil and gas, and construction industries.
• Helps you structure risk transfer agreements to protect against contractor-related liabilities.
• Offers direct access to top-rated insurance carriers to ensure comprehensive coverage.

Next, we will discuss best practices for protecting your business from liability when working with independent contractors.

‍Best Practices to Prevent Contractor Liability Issues

‍The following best practices will help you minimize liability exposure, ensure compliance, and safeguard financial stability when working with independent contractors.

• Conduct Due Diligence: Verify licensing, certifications, and safety records to ensure compliance and reduce risk.

• Strengthen Contractual Protections: Include indemnification clauses, insurance requirements, and a clear scope of work in all agreements.

• Require Insurance Coverage: Ensure contractors carry general liability, professional liability, and workers’ compensation insurance to shift financial risk.

• Limit Control Over Contractor Work: Focus on contract outcomes rather than work methods to avoid employer-employee misclassification.

• Review Contractor Relationships Periodically: Regularly reassess contracts, compliance, and insurance coverage to prevent liability shifts.

Mitigating liability risks requires the right strategies, but having a trusted insurance partner can make all the difference. Let’s look at this in the next section.

‍How TWFG Khan Insurance Can Help Protect Your Business

‍Running a business comes with risks, but you don’t have to face them alone. At TWFG Khan Insurance, we help you stay protected with expert guidance and tailored insurance solutions. Here’s what you can expect when you work with us:

• Access to Top-Rated Insurance Carriers – We connect you with the best coverage options to match your business needs.
• 24/7 Claims Support – When the unexpected happens, we’re here to help—anytime, anywhere.
• Customized Risk Management Strategies – Every business is different, and we tailor our solutions to your industry risks.
• Seamless Policy Handling – We make the process easy and hassle-free, from selecting coverage to handling renewals.

Let’s make sure your business is covered the right way. Get a quote with us.