How worthwhile is contractor insurance (esp. in Canada)?

Question

I have an employer here in Canada wanting me to do a gig as an independent contractor, and start asap. Front-End web, fairly straightforward project. At the same time, they and/or the recruiter are pushing me to get contractor insurance. I've worked one such contract gig before and nobody even mentioned insurance. I've never seen it discussed here or anyplace else. I called up one company to get an estimate some time back and the rep was citing annual fees in the thousands of dollars.

How useful/important is contractor insurance for a role like this? Any useful input/experience from you would be appreciated.

Being pushed in this direction by the hiring people makes me feel like either the insurance itself or maybe even the job are open to being a scam: e.g. I build the project, do it well, but they complain and make money off a settlement through the insurance, I'm ruined, the end.

Answer 1

Contractor insurance is a basic requirement for working as a freelancer where I work (EU). Most of the contracts I get specifically mention they expect to me have contractor insurance. It costs around 500-700 euros though, certainly not thousands.

The reasoning for the insurance is: if I give incorrect advice, or create something which is used and then causes damage that results in financial losses the client knows I have an insurance that can cover this. Never heard anyone actually needing it though.

Answer 2

I cannot specifically address the Canadian aspect, but generally speaking the situation does raise a few eyebrows.

Having been an IT-contractor for 15+ years, insurance has been mentioned 3-4 times. I have insurance, but have never needed it. As a side note, my Danish insurance explicitly does not cover North America, so there may be some liability laws that should be looked into if you decide to move forward.

When there is an intermediate company between the contractor and the end client, it's only natural that the intermediate seek to limit their exposure to any potential disagreement between the two other parties - who are involved in the actual work, which 99% of the time is what causes disagreements.

When the client has been mine directly (as seems to be the case here), I have never ever heard them mention insurance. There could be several reasons for that; the first being that they assume you have insurance, another being that they do not foresee problems of a scale that merit insurance.

In your case, I would ask the client which aspects of the project worry them to a degree that they are willing to pay for insurance. If the client is not technologically advanced, it could be that they are merely attempting to insure away a general paranoia towards technology. If so, make it clear that there are best practices that mitigate all of their concerns; e.g. source control, CI, backup.

The only real red flag would be if they want insurance against late delivery. Scope creep is often tricky to manage - especially if the client is 'immature' regarding IT-projects, or just unresponsive or organizationally a mess. Instead I would attempt to put processes in place that seek to ensure that the delivery process moves along and resolve issues when they arise.

If the client seems to insist on insurance regardless of what you say - it could be time to walk away, as it seems they have already decided that they will be needing the insurance.

Answer 3

If your client wants Insurance, just get it and factor it into your prices! Other than that, make sure you limit your liability in the contract so it does not exceed the amount you are insured.

I even did advertise with my insurance: If you go to a limited liability company and they fail at your project - you can sue them but they will just go bankrupt. If I fail, I am insured up to 2 million Euros! I would even offer to up the coverage to 10 mio for a slightly higher hourly fee.

I don´t know how you would be ruined. The thing about insurances is, they don´t like to pay claims. They usually have very good lawyers to dispute bigger claims. That´s why it is also known as passive legal insurance. If it was a scam, it would be much easier to rip you of if you did not have insurance.