Insurance for freelancers on a construction site
Sep 16, 2020
By: Itzick Simon
One of the well-known phenomena in the construction industry is the high presence of freelancers, such as project managers, foremen, and recently also safety assistants, who are employed on an invoice for reasons of convenience for both parties - the employer and the freelancer, but in the employer-employee relationship test, they are treated like regular employees.
Often these are professionals who, on the one hand, are employed against an invoice, and on the other hand, constitute an integral part of the professional team . Often, their work on the project constitutes their only, or at least their main, business-professional activity, to say the least.
In terms of the employee-employer relationship test , often a freelancer who works 8 hours a day for the same employer and has an office and workstation on site is considered an ordinary employee, and may be legally considered an employee for all intents and purposes from a material point of view.
It is important to know that the contractor work insurance policy does not cover the professional liability of these freelancers . Whether we are dealing with a foreman who may be found responsible for a serious safety incident (up to a fatal work accident), or project managers who may be exposed to liability for property or bodily harm. The professional liability insurance policy of the entrepreneur or contractor also does not cover the professional liability of freelancers employed via invoice.
We are therefore dealing with a fundamental issue from the perspective of the contracting company or the entrepreneur, as well as from the perspective of the freelancer himself . In many cases, these freelancers do not adhere to adequate insurance that will provide them with protection on the day of the order, and their large exposure may create exposure for both the contracting company and the entrepreneur. In the event of an insurance case, the contractor / entrepreneur will have to rely on the solvency of that freelancer, both in terms of the compensation that can be awarded against them, and also - no less important - in order to conduct a legal campaign for the high expenses involved.
Moreover, if it were determined that, although an employee-employer relationship is not defined contractually between the parties, in reality the contracting company/entrepreneur is the one that actually employs that freelancer, then the liability of that employee for his negligent act or omission could be imposed on the contracting company/entrepreneur, without the policies covering this liability.
In the absence of a formal employee-employer relationship between the contracting company or entrepreneur and the freelancer providing the service, an insurance exposure is created that must be taken into account.
By: Itzick Simon
One of the well-known phenomena in the construction industry is the high presence of freelancers, such as project managers, foremen, and recently also safety assistants, who are employed on an invoice for reasons of convenience for both parties - the employer and the freelancer, but in the employer-employee relationship test, they are treated like regular employees.
Often these are professionals who, on the one hand, are employed against an invoice, and on the other hand, constitute an integral part of the professional team . Often, their work on the project constitutes their only, or at least their main, business-professional activity, to say the least.
In terms of the employee-employer relationship test , often a freelancer who works 8 hours a day for the same employer and has an office and workstation on site is considered an ordinary employee, and may be legally considered an employee for all intents and purposes from a material point of view.
It is important to know that the contractor work insurance policy does not cover the professional liability of these freelancers . Whether we are dealing with a foreman who may be found responsible for a serious safety incident (up to a fatal work accident), or project managers who may be exposed to liability for property or bodily harm.
The professional liability insurance policy of the entrepreneur or contractor also does not cover the professional liability of freelancers employed via invoice.
We are therefore dealing with a fundamental issue from the perspective of the contracting company or the entrepreneur, as well as from the perspective of the freelancer himself . In many cases, these freelancers do not adhere to adequate insurance that will provide them with protection on the day of the order, and their large exposure may create exposure for both the contracting company and the entrepreneur. In the event of an insurance case, the contractor / entrepreneur will have to rely on the solvency of that freelancer, both in terms of the compensation that can be awarded against them, and also - no less important - in order to conduct a legal campaign for the high expenses involved.
Moreover, if it were determined that, although an employee-employer relationship is not defined contractually between the parties, in reality the contracting company/entrepreneur is the one that actually employs that freelancer, then the liability of that employee for his negligent act or omission could be imposed on the contracting company/entrepreneur, without the policies covering this liability.
In the absence of a formal employee-employer relationship between the contracting company or entrepreneur and the freelancer providing the service, an insurance exposure is created that must be taken into account.
The insurance solution
The appropriate insurance solution is to add cumulative conditions regarding the employment of freelancers by invoice, provided that those freelancers are employed by the insured only , in connection with their work and/or activities for the insured only - both in the contract work insurance policy and in the professional liability insurance policy taken out by the insured. This solution allows the regulation of the insurance issue according to the risks, at the same time as the possibility of working with freelancers against an invoice due to considerations such as convenience, taxation, etc.:
Expansion of personal liability - so that the policies will be expanded to include coverage for the personal liability of the insured's employees , including freelance workers employed by the insured , for an insured event caused by their activities while acting as an agent of the insured in all matters related to the insured's occupation.
Expanding the name of the insured to include employees employed through an invoice , provided that these employees are employed by the insured only , in connection with their work and/or activities for the insured, and for this purpose they will be considered employees for all purposes.
It should be noted that it is important that the proposed insurance solution be reflected in both policies - both the contractor work insurance policy and the professional liability insurance policy - so that the same freelancer is provided with coverage for both physical and financial damages.
Alternatively, the freelancer can also be required to independently purchase professional liability insurance, but this is not necessarily the practical solution for several main reasons:
First, it should be remembered that professional liability insurance must be in effect at the time the claim is filed (Claims Made), and therefore it is not sufficient to take out such insurance at the time the project is carried out, but it is necessary to continue to maintain this insurance for a long period thereafter.
Second, the professional liability insurance policy is an expensive policy, and requiring a freelancer to purchase professional liability insurance could create a high entry threshold that the professional will not be able to (or will not be interested in) meet. Furthermore, even if they do, there is no guarantee that they will continue to maintain this insurance after the end of the project period, and then there will be no insurance coverage if the policy is not in effect at the time the claim is filed.
Not only that, sometimes it can be difficult to obtain professional liability insurance, especially for foremen and safety supervisors who are not engineers or technicians, and in many cases this is simply not possible, and even if it is possible for some professionals - usually the limits of liability provided within the policy are low in relation to the possible risk, with a high premium - so this is insurance that becomes "uneconomical."
The appropriate insurance solution is to add cumulative conditions regarding the employment of freelancers by invoice, provided that those freelancers are employed by the insured only , in connection with their work and/or activities for the insured only - both in the contract work insurance policy and in the professional liability insurance policy taken out by the insured. This solution allows the regulation of the insurance issue according to the risks, at the same time as the possibility of working with freelancers against an invoice due to considerations such as convenience, taxation, etc.:
Expansion of personal liability - so that the policies will be expanded to include coverage for the personal liability of the insured's employees , including freelance workers employed by the insured , for an insured event caused by their activities while acting as an agent of the insured in all matters related to the insured's occupation.
Expanding the name of the insured to include employees employed through an invoice , provided that these employees are employed by the insured only , in connection with their work and/or activities for the insured, and for this purpose they will be considered employees for all purposes.
It should be noted that it is important that the proposed insurance solution be reflected in both policies - both the contractor work insurance policy and the professional liability insurance policy - so that the same freelancer is provided with coverage for both physical and financial damages.
Alternatively, the freelancer can also be required to independently purchase professional liability insurance, but this is not necessarily the practical solution for several main reasons:
First, it should be remembered that professional liability insurance must be in effect at the time the claim is filed (Claims Made), and therefore it is not sufficient to take out such insurance at the time the project is carried out, but it is necessary to continue to maintain this insurance for a long period thereafter.
Second, the professional liability insurance policy is an expensive policy, and requiring a freelancer to purchase professional liability insurance could create a high entry threshold that the professional will not be able to (or will not be interested in) meet. Furthermore, even if they do, there is no guarantee that they will continue to maintain this insurance after the end of the project period, and then there will be no insurance coverage if the policy is not in effect at the time the claim is filed.
Not only that, sometimes it can be difficult to obtain professional liability insurance, especially for foremen and safety supervisors who are not engineers or technicians, and in many cases this is simply not possible, and even if it is possible for some professionals - usually the limits of liability provided within the policy are low in relation to the possible risk, with a high premium - so this is insurance that becomes "uneconomical."
In conclusion
Introducing an extension specification that includes expanding the liability of freelancers working via invoice for the insured only in the contractor policy and the professional liability insurance policy, provides several key advantages:
- Protecting the freelancer is also protecting his employer - a freelancer's employer has an interest in protecting the latter, as freelancers often include indemnity clauses in their contracts that obligate their employer to indemnify them in the event of a claim.
- Preventing mutual rivalries - legal rivalries with freelance professionals on the site, such as project managers, foremen, etc., do not contribute anything to either party; on the contrary, they can be very harmful.
- Difficulty obtaining professional liability insurance for freelancers - There may be difficulty obtaining professional liability insurance for these professionals, and often the only possible solution is to include them in the policies of the contractor/contractor company.
- Protection against indemnity claims - purchasing a policy for contracting work from an agent who is an expert in the field, when purchased properly, will most likely prevent a claim being filed directly against the freelancer, including a subrogation claim by an insurance company in an advanced process for another claim that has been received.
- Financial advantage - there is no need to purchase two policies - one for the contracting company and the other for the freelancer, and the freelancer is not required to purchase a dedicated policy for professional liability insurance. The high cost of a policy can be passed on to the contractor/entrepreneur, and be reflected in the price of the contract with the freelancer.
- Date of filing the claim - There is no need to monitor the validity of the professional liability policy even many years in the future, and there is no dependence on a liability policy based on the "date of filing the claim."
Introducing an extension specification that includes expanding the liability of freelancers working via invoice for the insured only in the contractor policy and the professional liability insurance policy, provides several key advantages:
Protecting the freelancer is also protecting his employer - a freelancer's employer has an interest in protecting the latter, as freelancers often include indemnity clauses in their contracts that obligate their employer to indemnify them in the event of a claim.
Preventing mutual rivalries - legal rivalries with freelance professionals on the site, such as project managers, foremen, etc., do not contribute anything to either party; on the contrary, they can be very harmful.
Difficulty obtaining professional liability insurance for freelancers - There may be difficulty obtaining professional liability insurance for these professionals, and often the only possible solution is to include them in the policies of the contractor/contractor company.
Protection against indemnity claims - purchasing a policy for contracting work from an agent who is an expert in the field, when purchased properly, will most likely prevent a claim being filed directly against the freelancer, including a subrogation claim by an insurance company in an advanced process for another claim that has been received.
Financial advantage - there is no need to purchase two policies - one for the contracting company and the other for the freelancer, and the freelancer is not required to purchase a dedicated policy for professional liability insurance. The high cost of a policy can be passed on to the contractor/entrepreneur, and be reflected in the price of the contract with the freelancer.
Date of filing the claim - There is no need to monitor the validity of the professional liability policy even many years in the future, and there is no dependence on a liability policy based on the "date of filing the claim."
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