Remodeling, like all construction projects, is a risky business. Construction accidents are as common as the sawdust on the floor. If something happens on your project, will you be protected from severe financial consequences?
Before starting any construction project, it’s essential to discuss your insurance requirements with your insurance advisor (ie. your insurance agent/broker). Although everyone has different insurance needs, here are some general tips:
1) When you hire a general contractor, make sure that he or she provides you with a Certificate of Insurance before any construction starts. (In fact, you may wish to get the Certificate before signing a contract!) This is a standard form issued by the contractor’s insurance agent listing the contractor’s current insurance coverage.
You should review this with your own agent to make sure that it’s adequate for your own needs.
2) Ask to be named as an “additional insured” under your Contractor’s policy. This will give you additional protection by the contractor’s insurance company in the event of a third-party lawsuit. For example, if your neighbor sues both you and the contractor because of some property damage, your contractor’s policy may provide the coverage.
This “additional insured” coverage is usually free or extremely inexpensive.
3) Although licensed contractors are required by law to carry Workers Compensation insurance — if they have employees– some small contracting companies may not be carrying any additional insurance. (Workers Compensation covers only accidents to the contractor’s employees.) Workers Compensation insurance has gotten to be so expensive lately that many contractors have dropped their other insurance, just to stay competitive.
It is especially imperative if you choose to work with a relatively uninsured contractor that you have adequate Homeowner’s coverage. Again, check with your agent.
What about hiring unlicensed individuals? For example, there are many excellent carpenters who are not licensed, yet who may be seemingly perfect for your job.
California law says that for work valued over $500 (including labor and materials), if the worker is not licensed, then they are technically your employee. That means that YOU have a legal obligation to provide Workers Compensation insurance, withhold taxes, etc., etc.
If your unlicensed carpenter gets injured, and suddenly is unable to support himself, you can guess where he will look to for financial support. And remember, it’s as easy to saw off a finger or fall off a ladder on a small project as it is on a large one.
Getting your own Workers Compensation insurance is expensive, and the additional employee paperwork is a big hassle, but is it worth risking your life savings to ignore? Trying to get out of your legal obligations and potential liability by having some kind of “agreement not to sue” is not likely to hold up in court, either.
Although you may recall a Workers Compensation clause in your Homeowner’s policy, usually this is for part-time domestic help (such as a gardener or housekeeper) only. Construction work will probably require a different Workers Compensation policy. Again, check with your agent.
The City will require evidence of Workers Compensation insurance, either from your licensed contractor, or from you. You might as well be prepared in advance, so there are no delays.
Remodeling projects are stressful enough as it is. Knowing that you’re covered with the proper insurance will hopefully let you sleep much more peacefully at night.
For additional information, read the Contractors State License Board booklet, “What You Should Know Before You Hire a Contractor.” (Available online for free – http://www.cslb.ca.gov/consumers/beforehiring.asp)