Whether you’re a homeowner, business owner or real estate investor, your properties require maintenance. ceilings wear, pipes leak, and sometimes you may want to remodel your space. in these cases, he will have to hire a contractor.
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Hiring a general liability, auto, and workers’ compensation contractor is a must. Without it, you could be liable for any injuries or damages your contractor causes.
In addition, hiring an uninsured contractor limits your ability to repair damage caused by faulty construction, such as water or fire damage.
We suggest the following guidelines before unknowingly hiring an uninsured handyman or contractor.
what insurance must a hired contractor have?
The most important insurance a contracted contractor must have is workers’ compensation insurance. Hiring a contractor without workers’ compensation insurance could leave you paying an injured employee’s or subcontractor’s medical bills indefinitely, just for hiring someone to repair their property.
While working on your project, your contractor or a contractor’s employees could be injured at your location.
Often, home and business owners think that while an injured worker is unlucky, it’s not their problem. however, if your contractor does not have workers’ compensation insurance, the workers’ compensation claim goes up to the “prime contractor”; in many states, that is the owner of the project.
You could be responsible for their medical bills and lost wages while they are unable to work, and your insurance may not cover this risk.
general responsibility (with products and operations completed)
Before you hire a contractor, you should make sure the contractor has adequate general liability insurance coverage.
For example, if you hired uninsured contractors to paint your building and they accidentally sprayed paint on neighboring properties and caused damage, you could be responsible for paying those damages. if the contractors had insurance, their insurance policies would cover the damage.
In addition to the appropriate general liability limits, you should verify that your contractor’s insurance policy includes products and completed operations coverage.
Products and completed operations coverage pays for damage or injury caused by the contractor after the job is completed. This not only protects you from lawsuits arising from damages caused by contractors to others, but also provides you with a policy to collect if the contractor’s work causes you harm.
For example, let’s say you hired a contractor to build a balcony on your two-story home, and the job was completed six months ago. it looked great and worked fine when you went out. It wasn’t until you invited some guests and several people stood on the balcony that it collapsed, seriously injuring those who fell to the ground.
This would cause a substantial amount of medical bills and costs related to the fall. The products and completed operations coverage in your contractor’s policy would cover the claims of your guests, as well as the payment of your medical bills if the coverage caused you to be injured.
Without this coverage, you most likely won’t be able to collect any money for your medical bills and you could be personally liable for your guests’ injuries. Also, if he owns a home, unless he has purchased an umbrella policy, the homeowner’s liability limits may not be high enough to cover the incident.
Auto liability coverage is overlooked by many homeowners and business owners who hire contractors. some contractors are not large enough to justify a fleet of work trucks and some projects do not require this coverage. review your particular project to decide if auto liability is something you should add to your contractor’s requirements.
The main reason we suggest adding commercial auto liability insurance to your contractor insurance requirements is for loading and unloading coverage.
Contractors often have materials and tools on their trucks. If there was an accident while they were loading those materials onto the truck or unloading them into your building, this would be an auto insurance claim and not a general liability claim.
How do I check a contractor’s insurance?
verifying your contractor’s insurance requires a certificate of insurance. this is a document from your contractor’s insurance broker verifying they have coverage.
name and date checks
To ensure you’re not hiring an uninsured handyman, it’s essential to verify that the proof of insurance provided by the contractor applies to your project.
Make sure the name of the contractor on the certificate is the correct name of the contractor you are hiring. If you’re hiring “excellent plumbing, llc,” don’t accept a certificate that has the insured listed under the owner’s name.
Also, look at the date the certificate was issued. If that date is not the same as or later than the date you applied for the certificate, you cannot be sure the insurance is still in effect.
Finally, an additional authenticity step is to verify that your name is on the certificate as the certificate holder.
check the general limits of liability and completed operations
It is important to know that your contractor has appropriate limits for the job. this is where you go to see what limits they have. see “every occurrence” & “products – comp/op agg” for limits discussed.
Because jobs vary in all sizes and risks, we don’t have a general suggestion about the limits a contractor should have before starting their project. in this example, the contractor is limited to $1,000,000 per occurrence with a limit of $2,000,000 in products and completed operations. this specific contractor is also capped at $5,000,000, giving you total caps of $6,000,000 per event and $7,000,000 in product and cap on completed trades.
The larger your project, the more you will need additional limits to minimize your risk as a building owner.
check workers compensation and auto coverage
Verify that your contractor has workers’ compensation and auto coverage by making sure the coverage is complete and the limits seem adequate.
cheap contractor offers often mean fewer protections.
When hiring a contractor, keep in mind that the cheapest bids may come at a cost.
It is often difficult for a contractor who is fully insured, has quality protective equipment, and properly trains employees to compete against those who do not.
If you accept a low offer quote, checking the insurance program becomes even more important to protect your home or business from lawsuits and uncovered claims. the verification process is critical in trades where exposure to damage or injury is greater, such as roofing and framing.
Does your contractor hire contractors without insurance?
Just as you verify that your contractor has insurance, your contractor should verify that your subcontractors also have insurance.
How do you know if your contractor hires subcontractors? just ask. It’s important to make sure that anyone who works in your building is fully insured, even if you don’t have a direct contract with them.
If you are not sure where your contractor verifies insurance, require subcontractors to provide a certificate or ask the contractor for copies of the insurance certificate.
does this be covered by homeowners or business insurance?
could, but every policy is different. Many homeowners and business insurance policies will help you in this scenario, but many don’t.
In our article, “what is a business owners policy (bop)?” we discuss how many insurance companies will add exclusions that apply to construction operations and subcontractors. If you have any questions about your policy, schedule a free call with a Landesblosch Risk Advisor.
Even if your insurance program covers this exposure, you should contribute only after the contractor’s limits are reached and pay your defense costs. this minimizes your exposure to out-of-pocket expenses that could put your assets at risk.
It is important not to assume the liability risks of your contractor.
Hiring a fully insured contractor protects you from lawsuits arising from the contractor’s actions, but it also prevents you from suffering financially if the contractor damages your property or causes injury to you or others.