Who pays for property damaged by independent contractors?
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UPDATED: May 8, 2018
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The key thing about independent contractors—assuming, they are independent contractors — they are independent. That means, they are effectively a separate – autonomous–person from their customer or client. (Many people call the person or business hiring an independent contractor an “employer,” but that’s not really correct: employers employ employees. Contractors, being their own businesses, have clients or customers.)
The second thing about independent contractors is that the relationship between them and their client is based on a contract. Contracts can assign or apportion liability—that is, determine who pays for damage—however the parties agree, and can therefore override the general rules for liability, such as those described below.
In order to answer –who pays when a contractor damages property—an explanation of “the general rule” is necessary.
Because the Contractor is Separate from the Client, the Contractor Can Be Liable for Damage Done
You can’t sue yourself for damaging your own property.
A company can’t sue itself for damage done to its own property by its employees.
But a contractor is not the client and is not an employee of the client. As stated, an independent contractor has an independent existence from the client or customer. That means that the contractor is a different person or entity and, as such, provides someone to sue when damage is done. Or put another way, this means that independent contractors can potentially be held liable for their damage.
Independent Contractor Liability is Based on Fault—Unless …
At its heart, independent contractor liability is grounded in basic tort (fault) liability principles. The most basic liability principle is that if you are at fault in damaging another’s property or causing another to incur costs (e.g. repair costs), you are liable (or financially responsible) for that damage or cost.
Fault is based on either an intentional bad act (i.e., deliberately damaging someone’s property) or on negligence. Negligence is “unreasonable carelessness”—not being as careful as the hypothetical reasonable person would be in that situation.
So if a contractor either intentionally causes damage, or causes damage by not taking reasonable precautions or exercising a normal and expected amount of care, the independent contractor will be liable for the damage the contractor does–the same way any individual would, for example, be liable if they carelessly (or intentionally) ran their car into another person’s vehicle.
Fault is critical. If the contractor was not being careless or did not deliberately cause damage, the contractor is not responsible.
But if there is a contract assigning fault liability, see what it says …..
The Contract Can Change or Assign Liability
The contractor-employer relationship is (in theory) purely a contractual one—the parties’ obligations to each other are exactly those set forth by the agreement or terms under which the independent contractor is working. The parties have those rights, and precisely those rights, set out by contract.
Generally, contracts are enforced as written. Courts are reluctant to rewrite these agreements or interpose their own judgment. Of course, all contracts are not created equal—some are clearer and more thorough or comprehensive than others, and sometimes there is no formal written agreement—just an informal or oral understanding.
If a contract does not mention liability or responsibility for damage, then the general liability rules discussed above apply. But the parties (the contractor and client) have the right to set up any rules they want about liability. So the contractor could be responsible for all damage, regardless of fault. Or the contractor might not be responsible for any damage. Or the contractor might be responsible for all damage up to (or conversely, over) a certain dollar amount. Or the contractor may be responsible for damage to certain items or property, but not others, or only for certain kinds of damage…the possibilities are endless, and are limited only by the parties’ imagination.
The important thing is that just as courts generally enforce the terms of contracts as written, they will enforce such liability terms. If there is a written contract, whatever it says about contractor liability, is what will be enforced.
Is the Contractor Independent or Not?
It’s not enough to call someone a contractor: they must be an independent contractor under the law to be treated as one and not as an employee.
While determining whether someone is an independent contractor or an employee is a separate topic, the touchstone is simply this: is the alleged contractor largely independent of the client and not subject to client control? If so, the contractor will be a contractor; if not, the contractor may be an employee, subject to very different rules.
To offer a simple example:
An electrician whom you call to work on your house is an independent contractor. You tell him what you want done, then get out of his way while he does it. He tells you when he is available to work; he provides his own tools and materials; you don’t micromanage or direct him; he does the task you hired him for and that’s it.
On the other hand, an administrative or executive assistant is the quintessential employee. He or she does whatever tasks the boss wants, however the boss wants, whenever the boss wants it done, and the boss can micromanage to his or her heart’s content.
If someone is more like the electrician, they are probably an independent contractor; if more like the assistant probably an employee.
That’s the oversimplified version above. For a more detailed and nuanced look at when someone is a contractor or when they are an employee, you can find guidance on the IRS (https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined) and U.S. Department of Labor (https://www.dol.gov/whd/workers/Misclassification/) websites.