Contractors Gone Wild! Are You Covered?

independent contractor vs. employee thieves-2012538_1280When an employee embezzles money, a company may look for insurance coverage under a crime policy, for employee theft. When an independent contractor steals money, a general commercial liability may cover the loss. But when an independent contractor acts like an employee, performs services typical of an employee, then steals money — neither coverage may apply.

That’s the harsh lesson recently learned by an Indiana company. Telamon Corporation retained an independent contractor to provide services through a series of consulting agreements. Eventually, the company made her a Vice President (please don’t name your independent contractors “Vice Presidents,” then claim they are not employees!) and put her in charge of recovering old telecommunications equipment to sell it to salvagers. She had other ideas, however. She recovered the equipment and sold it to salvagers, but she kept the money for herself. $5.2 million of it.

That eventually landed her in prison, where she won free use of an orange jumpsuit for five years. I know, she could have afforded a blinged-out $5 million jumpsuit, but she took the free one from the state.

Telamon, meanwhile, tapped its insurers to try to recover the cash.

One insurance policy covered losses due to crime by employees. Telamon’s claim was denied when the insurer pointed to the consulting agreements that said she was an independent contractor, not an employee. Strike One.

The second policy covered property loss by an employee or contractor, but not if the property had been entrusted to that individual. Strike Two. This policy failed to cover the loss because the telecommunications equipment has been entrusted to the thieving V.P.

Telamon was out of luck, out of telecom equipment, and out of $5.2 million.

The takeaway for employers: Check your insurance policies and see whether they apply to losses by independent contractors and by employees. Then pay attention to whether your classification of a worker is accurate.

A worker performing services as a Company Vice President is likely an employee, but here Telamon held firm to the notion that she was an independent contractor. The likely misclassification may have cost the company millions in available insurance coverage.

The worker, on the other hand, was consoled to learn that orange is the new black.

© 2017 Todd Lebowitz, posted on, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.