If you are considering home renovations or a remodel of your abode, you need to be aware of the biggest pitfall: liability if the contractors you hire don't carry the necessary insurance.
If a contractor lacks workers' compensation coverage, for example, the homeowner could be on the hook for the cost of medical care and lost wages. The key to avoiding this scenario is to ensure that the contractor is the one bearing the risk and that they have the proper insurance to do so.
You'll want to ensure that the general contractor, and that they and their subcontractors are responsible for property damage and injuries to their workers, third parties and you.
How do you ensure this? Through a well-worded contract that ensures that you avoid any potential liability for injuries or property damage caused by the general contractor and their subs.
The contract
Protection starts with a clearly worded contract between the homeowner and the general contractor. It should cover at least these main points:
- Scope of the work and price of the project.
- Legal names of both homeowner and the general contractor, and their addresses (no P.O. boxes).
- The contractor's license and tax ID number.
- Requiring the general contractor to carry workers' compensation and commercial general liability insurance, and that they provide certificates for both policies.
- The contractor should list the homeowner as an additional insured under their general liability policy, and provide proof of having done so.
- A hold harmless agreement or indemnification clause that outlines the contractor's responsibilities if their work results in injury or damage.
- Warranty details.
- Project time frame, including start and end date.
- Homeowner responsibilities.
- Indemnification clause that benefits the homeowner.
- Clearly outline the payment structure, including the total project cost, deposit requirements, progress payments, and the final payment due upon completion.
- A detailed and specific description of the work to be performed. This should include all aspects of the project, including labor (man hours, materials, finishes, dimensions and any other relevant details).
Contractor's insurance
When checking a contractor's certificates of insurance, homeowners should look for the following:
Current dates — Check to see that the coverage is current. If it's past the policy expiration date, you should ask for their new policy certificate. Do not proceed if they can't provide an in-effect policy.
General liability coverage — The contractor should have this insurance, which covers bodily injury to you or third parties and property damage arising out of their operations.
Check also to see if their coverage includes "products and completed operations," which covers damage that may arise out of their finished work. If this is not included, then the contractor's liability ends when they finish the job.
Workers' compensation — This coverage is mandatory for all employers, except under very rare circumstances. It covers medical expenses and lost wages if an employee is injured on the job. If the contractor doesn't have workers' comp, you could be on the hook for these costs.
Sometimes small contractors will tell you that they don't need to have it, but that is typically true only if they have no employees and it's a sole proprietorship.
Your insurance
The final backstop for you is your own homeowner's insurance policy and any umbrella insurance coverage that you have. These policies can ensure that any contested claims are paid and that your insurer may step up to fight claims against you and push the liability to the contractor or their subcontractors.
If you have an ironclad contract to protect yourself, you won't suddenly find yourself out of pocket for damage that you were not responsible for.
Give us a call if you'd like to discuss your insurance options