Even with insurance, buyers may still be at risk

As most buyers know, insurance can be a very tricky issue from a buyer-supplier standpoint. Many years ago, I worked in material handling. Mainly in shelving, hoists and cranes. We sold shelving and many times outsourced installation on the customer’s premises. It was a time when insurance became a real issue. We could not use an installer that did not carry adequate coverage. Also many companies would not allow workers on their premises without sufficient insurance. This hurt the small companies and many went out of business.

The ISM Study Guide points out that: “Most purchase contracts specify the type and minimum amount of insurance required. It is important that the supply management organization be named as an additional insured on any such insurance policy.   Subcontractors should be similarly insured, and the supply management professional should either make the contract conditional upon adequate coverage or ensure such coverage is in place before issuing the contract. If a contractor is injured at one of the buying organization’s locations, whether the organization will be liable depends on whether a court considers the injured contractor an independent contractor or an employee of the organization.”   

In short, the ISM guide points out that in the eyes of the court, a contractor will be considered an employee and the buying organization considered the “prime” contractor, if the following are true:

• The buying organization tells the contractor’s workers how to do the job or has requisite control over their jobs. Even if the buying organization has the right to control the contractor’s workers jobs but does not do so, an employer-employee relationship can be deemed to exist.

• The buying organization furnishes tools needed for the job, including vehicles.

• The buying organization has the right to terminate contractor workers’ services at any time. (If the workers could be terminated only at the end of a job, they would be considered independent contractors, in which case failure to permit the contractor to complete the job would be a breach of contract.)

• The contractor workers perform work that is part and parcel of the regular business of the buying organization.

• The contractor workers are paid by a time frame (hour, week, month). Contractors are paid by the job.

• The contractor does not hold itself out to the public as an independent contractor. Evidence of an independent contractor might include contractor letterhead, business registration, previous work as an independent contractor and so on. 

What do you think? Ever had an insurance issue with a supplier? Where do you get your best practice information from in this area? Post a comment here to share your thoughts.