Who pays for property damaged by independent contractors?

The law has many exceptions, and the answer to this question will give way to a series of other questions regarding the extent of repair, reasonableness of replacement, control over the job, existence of a written agreement (or prior dealings) and how exactly independent the contractor was in doing the job.

Independent Contractor Liability

Independent contractor (or IC) liability is ideally a case where the relationship between the parties and the company hiring him or her should not matter. But the exceptions are so common, that they are sometimes the rule. At its heart, IC liability is grounded in basic liability principles: if a customer, client, guest, etc. of the employer, or even a random passer-by, would be liable for the damage, so would be the independent contractor. This is because 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.

Contractor-Employer Agreements

Courts are reluctant to rewrite these agreements. Many times, however, there is no formal agreement in writing, or the parties have not updated or changed their first agreement after an extended period of working together. When this is the case, it’s important to first verify the relationship between the parties. The IRS gives some guidance to determining the nature of the business relationship here http://www.irs.gov/businesses/small/article/0,,id=99921,00.html.

But the IC relationship cannot exist if there is an employer-employee relationship—that is, if someone is properly considered an employee, that person is not an independent contractor. This is typically the first analysis: determining whether the “independent contractor” is in fact an independent contractor.

In areas outside the contract, the two parties may have no more relationship to each other than any two other parties. So if the contractor damages the client's property, he or she could be liable in the same way, to the same degree, and under the same theories, as any other person could be. That means that if the independent contractor either deliberately damaged the employer’s property, or did so by negligence (which is unreasonable carelessness—being more careless, or less careful, than the average reasonable person would be)—the contractor would be responsible for the loss.

However, the converse also applies: if the contractor was not at fault, which means the contractor acted neither negligently (carelessly) nor intentionally to damage the ’s property, there’s probably no fault and no liability. (There are some exceptions based upon what and how the IC was doing the work, however, and in these cases, the IC may have assumed strict liability.) Sometimes things break and no one is responsible, or some third party is responsible; when it’s not the independent contractor’s fault, he or she doesn’t have to pay. For example, say the contractor was provided with a company Blackberry to stay in touch and someone else knocked it out his hand and stepped on it—that wouldn’t necessarily be the contractor’s fault or cost...unless the agreement between the parties said there was blanket liability for damages to any property under the IC's control.

Determining Fault

Fault is usually judged on a case-by-case basis— circumstances dictate that what might be fault in one situation is not fault in another. An example would be to suppose that an independent contractor is given a company car—a regular sedan—and told to drive it to an off-road location to survey a possible construction site. Normally, driving a non-four-wheel drive car off-road could easily be negligent, or careless and give rise to liability for damage the car suffers as a result. But if the contractor was told to drive it off-road, he or she was not being negligent, at least in doing driving off-road as instructed, since the contractor was reasonably pursuing his or her duties. In that case, the IC was reasonably and forseeably doing the job for which he or she was hired.

General Rule:

If the contractor deliberately damaged a company’s property, or was, in light of all the circumstances, negligent, the IC may be liable for the damage.

The Bottom Line: the contractor-employer relationship is a contractual one. Contracts can and do reapportion liability. If the independent contractor agreement said that the contractor would not be liable for any property damage, he is not likely to be found liable. Conversely, if the agreement said the contractor would have to pay for any damage regardless of fault, then that’s what the contractor would have to do. Absent a contract, prior dealings between the parties will influence the outcome; failing the existence of any prior dealings between the parties, then existing industry standards may also affect the apportionment of liability.