Contingent Liability Coverage is a type of insurance that protects motor carriers in the event that an independent contractor claims to be an employee and sues for coverage under workers' compensation. This coverage reimburses the motor carrier for any settlements awarded to the independent contractor and covers the court costs incurred during the legal proceedings.
Motor carriers often utilize leased owner operators instead of hiring company drivers, which can bring cost savings through Occupational Accident Insurance for independent contractors compared to Workers' Compensation for employees. However, there's a risk that an independent contractor involved in an accident may later claim to be an employee and seek workers' compensation benefits from the motor carrier.
The criteria for determining whether an individual is an independent contractor include factors such as using their own equipment, hiring and paying assistants, setting their own work schedule, and bearing the potential for profit or loss. If any of these criteria are not met, the independent contractor could argue that they should be classified as an employee.
Legal disputes over worker classification can be costly for motor carriers, as evidenced by cases like the one involving FedEx and its drivers. In such cases, even if independent contractors own their own vehicles and operate as businesses, courts may still rule in favor of employee status, resulting in significant financial liabilities for the motor carrier.
Contingent Liability Coverage helps protect motor carriers from the financial risks associated with legal challenges to the classification of independent contractors. By having this insurance in place, motor carriers can mitigate the potential impact of lawsuits and safeguard their financial stability.