What type of insurance should I require from my contractor?

I recently had a very savvy homeowner avoid the potential for disaster because she ASKED QUESTIONS!  She and her husband had relied on a popular referring website to guide them when they were choosing a contractor.  During the process, they interviewed a few potentials and finally settled on a particular contractor who seemed particularly knowledgeable,  kind and appeared to be easy to work with.  The reviews for this company were fabulous, there were many satisfied customers, it was listed that the company was fully licensed and insured; it seemed the perfect fit!

The trouble started with the second level of questions; questions that the typical homeowner wouldn’t even know to ask!  “Will you personally do the work for which we are in need?” uncovered that this contractor relied heavily on others to actually do the physical labor.   These workers were not even employees that he managed and directed.  They were ‘subcontractors’ who were companies in their own right, yet the homeowner would not have the opportunity to conduct an interview.  “Could you please send my insurance agent proof of your insurance for her records?” was a very smart request that ultimately made the contractor ineligible for her project.

It is not enough to be told that a contractor is “fully licensed and insured”.  You should see proof, and you should obtain it directly from that contractor’s insurance agent.  An agent can provide a “Certificate of Insurance” showing exactly what commercial coverage is in place at the time of your request.  We also do our best to alert you if these policies lapse during the policy period for which we we have provided a certificate.  Contractors generally know their craft, their trade, but it is amazing how many either don’t understand what insurance they should have in place, or blatantly choose to avoid assuming the responsibility, instead transferring the risk to their customers.

What happened with our contractor in this story you ask?  He promptly complied with the request, sending pages showing 1 million dollars in coverage.  The trouble was, this million dollars was a personal “umbrella” policy which has nothing to do with commercial activities!  When this was brought to his attention, thinking that maybe the wrong file had been accessed, it became clear that the contractor didn’t really understand the importance of commercial insurance.

“I’m a one person company and all my subcontractors have insurance, so I don’t need to carry a policy” is a very common misconception.  The person taking the money for a given job is ultimately responsible for anyone who steps foot on that job site!  If he has no policy, or the subcontractors either never obtained one, or let theirs’ expire, the HOMEOWNER can get left with the financial burden of a disaster.

So what can go wrong?  Here are some situations that have occurred in our industry in the last twenty years.

– A painting contractor burned an entire house down by incorrectly taping a switch prior to painting.
– A roofer fell off a roof incurring major surgical and therapy bills as well as years of lost income.
– An oil company filled an entire basement with oil because the representative was careless and filled a clothes dryer vent rather than the oil tank.   This became a hazmat situation and the EPA required that all earth be removed at least two feet underneath the basement.
– A roofer walked off the job and left a house halfway completed.  The ensuing storms completely ruin the home and since he did not have proper insurance, the homeowner was ultimately forced to foreclose, rather than pay over $50,000 in damages out-of-pocket.

What type of insurance should you look for?  Here is a brief, general summary-

– General Liability including Products and Completed Operations pays for damages resulting from the contractor’s work or presence on your property
– Workers Compensation pays for injuries, death, or loss of income for the contractor, his employees, or his subcontractors if they have allowed their policies to lapse
– Commercial Auto pays for damages done with the contractor’s vehicles.  Many personal policies will not provide coverage if the vehicle is being used for commercial purposes.
– Bond – There are many types of bonds depending on the situation.  Most commonly contractors such as janitorial or health care will carry an employee dishonesty bond to protect their client in the event that an employee steals while on premises.  There are also bonds to guaranty the completion of larger jobs or jobs that must adhere to governing bodies such as VDOT.  

When in doubt, ask your insurance agent!  If you do not have a personal agent, or your agent does not specialize in commercial insurance, we would be happy to provide advice.

Are YOU prepared to risk the value of your home, or hundreds of thousands of dollars if someone is injured on your property or disaster strikes due to negligence or substandard work of a contractor?  In general, your homeowners insurance will not cover problems resulting from a contractors work!

Take the time to do your research and ALWAYS use companies who can prove that they have taken the responsibility for the liability resulting from their trade.  Proper insurance is part of the cost of being in business.  You have to wonder, if an organization is taking shortcuts in this very important matter, do they take shortcuts elsewhere?