If your business’s subcontracted driver is responsible for an accident, your business will be named in the lawsuit as well. The reason is simple: the driver was operating on your behalf, so liability is shared. Every business model has pros and cons, so before hiring subcontract drivers, be sure to understand how they will impact insurance costs.
First, let’s understand what an insurance company means by a subcontractor. Many times, our clients discover they aren’t using subcontractors at all, or are using them improperly.
From an insurance perspective, just because a driver is paid by 1099 does not mean they are a subcontractor. Stated another way, whether or not your drivers are paid by 1099 may mean something to the IRS, but it makes no difference to the insurance company.
An insurance company defines a subcontracted driver as one who 1) offers their services to multiple companies, 2) drives their own vehicle, and 3) brings their own insurance. If your business is providing the vehicle, or if the subcontracted driver does not have their own business insurance, chances are high that driver is your employee. Let’s clarify with some examples:
Example 1: ABC Transportation pays Tony Stewart by 1099 to drive their clients to doctor appointments. Mr. Stewart will drive ABC’s vehicles and he has no business auto insurance of his own.
- From an insurance perspective, Mr. Stewart is an employee of ABC.
Example 2: ABC Transportation pays Martha Stewart by 1099 and Ms. Stewart drives her own vehicle while working for ABC. A written contract exists between both parties.
- This is a true subcontract arrangement.
How to Structure Subcontractor Insurance
Courts can come after your business’s assets to pay for a settlement levied against it. Insurance is one means to shield your business from this risk.
The primary line of defense is to have your subcontractor name your business as an Additional Insured on their insurance policy. This is a standard industry practice and should not raise any concern from their insurance company. Additional Insured status simply means that if the subcontractor is responsible for an accident while driving for your business, their policy will protect you.
Points to Remember
Use a Written Contract
No matter how good your drivers, one day an accident will occur. A written contract should define what happens in that event. Have your lawyer and insurance agent review the contract.
Require Minimum Insurance Levels
The written contract should state what levels of insurance your subcontract driver is required to carry. We suggest at least $1,000,000 liability. Be sure to address:
- Business Auto. Keep in mind that the majority of personal auto policies provide zero coverage for a business. (Reference earlier post)
- Workers Compensation. Court cases show that if a subcontracted driver is injured, they can claim workers compensation benefits against your business, whether or not you have a workers compensation policy. Thus, if they don’t bring their own workers compensation coverage, your insurance carrier will charge you for them.
- General Liability. This coverage protects the business against non-auto related injury or property damage, such as may occur when helping patients to the door or pushing them in a wheelchair.
Be Named as Additional Insured
Obtain certificates of insurance from your subcontractors at least once per year that evidence all required coverages are in place and that your business is an Additional Insured.
Carry Hired and Non-Owned Auto Insurance Yourself
Be sure your own business auto insurance includes hired and non-owned auto liability in case the subcontractor’s insurance is inadequate when an accident occurs.
Give us a call at (877) 606-1375 or visit our non-emergency medical transportation web page for more information. Each of our clients is assigned a personal agent in our office.
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