Hiring uninsured contractors

27 Replies

What are the risks of hiring a contractor who is not insured?

I am also interested in knowing about the risks. Anyone here have some hard won experience?

If the someone gets hurt on your property because a piece of drywall, roofing, siding, etc. falls on there head (even if it is after you sold it) they could come back to you and sue you. Or if they are walking on your property and step on a nail or trip on a pile of 2x4's BUT if your contractor has insurance than HIS/HER insurance will pay for injury caused by construction type accident.
If you have a contractor do work and it causes damage then i.e. roof caves in. Or if it rains while the roof is off ruining the drywall. Sub falls threw roof.
You get the point.
J.B.

You can pay to have what ever you want to have done at the price you want to have it done. And you can pay to have it redone at whatever price you want to also. OR.........
J.B.

JB is absolutely right. The main thing to remember about ANY KIND of insurance is that it exists to COVER RISKS, that you DON'T WANT TO COVER OUT OF YOUR OWN POCKET. Whether it's on the possibility of injuries to workers or others on your property or the loss of your car because you didn't pay for collision and comprehensive. If YOU can afford to pay the loss out of YOUR POCKET, then you can forgo the insurance. Otherwise you need it.

Two big rules to follow when hiring contractors:

1. Don't have the guy SHOW YOU his insurance, have his AGENT FAX you his coverage, this makes sure it's in force.

2. As a rule I DON'T LET ANYONE "GET AHEAD" of me on money. That is I'm not paying anything up front. I have often bought the materials, or had the contractor buy them, but I pay for them at the supply house. If he isn't substantial enough to front my job I don't want him doing it. If it's a "long job", more than a week, I will make interim payments.

all cash

JB is absolutely right. The main thing to remember about ANY KIND of insurance is that it exists to COVER RISKS, that you DON'T WANT TO COVER OUT OF YOUR OWN POCKET. Whether it's on the possibility of injuries to workers or others on your property or the loss of your car because you didn't pay for collision and comprehensive. If YOU can afford to pay the loss out of YOUR POCKET, then you can forgo the insurance. Otherwise you need it.

Two big rules to follow when hiring contractors:

1. Don't have the guy SHOW YOU his insurance, have his AGENT FAX you his coverage, this makes sure it's in force.

2. As a rule I DON'T LET ANYONE "GET AHEAD" of me on money. That is I'm not paying anything up front. I have often bought the materials, or had the contractor buy them, but I pay for them at the supply house. If he isn't substantial enough to front my job I don't want him doing it. If it's a "long job", more than a week, I will make interim payments.

all cash

Originally posted by "all cash":
If he isn't substantial enough to front my job I don't want him doing it. If it's a "long job", more than a week, I will make interim payments.

Great point. I will keep this in mind from now on. Thanks!

Thanks for the info.

Any stable business has insurance, if the contractor you are talking to doesn't have insurance what makes you think they won't just blow away in the wind with your deposit?

Obviously if it's a family friend doing it on the side they might not have insurance but at least you know of their stability and you know where they live if you need to make a trip to their house at night with a bat. I'm not too keen on mixing money and blood though, I'd rather have a stranger do the work.....it's much easier to work with deals that are biz only and no family drama.

I recently had a bad experience with using a "contractor" that was a friend of the family. I did not have to front the entire cost of the project with this guy, but at the end of the day he simply didn't finish the project at all (he got close to the deadline I set and he just quit).

To top it all off: soon after he "fixed" the pipe I found it broken and the damage was so bad I had to get my insurance involved. Now the insurance company wants to go after him (for subrogation) and I'm more than happy to let them handle it.

Most reputable generals and subs have their own liability insurance. If they don't - I wouldn't use them. Before hiring them, ask for proof of insurance. They will gladly fax you a copy.

To protect yourself from fire, theft, vandelism, etc. - you can purchase what is called "course of construction" insurance. It's a yearly policy but can be cancelled whenever you are done. It is not expensive. We ask all our clients to have it. We do not insure 'their' house.

Remember, there are two types of insurnace you want to make sure you have: 1) liability (which covers any damage they do to your property or other sub's work and 2) worker's comp (which covers them if they or their employees get hurt.

You need both for each contractor.

And, I am quite sure that if a sub or a sub's employee gets hurt on the job, the GCs worker's comp coverage will only cover them if THEY hired them. If you, the owner hired them and they don't have their own WC policy, then it is on you.

Liability experience - a welder scorched a ton of new wiring in a renovation. The wiring was low voltage and couldn't be spliced so had to be totally redone. The loss was in the tens of thousands (this is a big rehab). His insurance covered it. Had it not, do you think little ol' welder guy would be paying snooty low-voltage guy for his smokin' wires? Not on your life.

You have to have insurance or it WILL catch up to you one day.

Insurance is very important. Any real and sucessful contractor has liabibity insurace. I know in Florida you can be worker's comp exempt but Liability is what an investor needs to make sure all their subs have.

In Florida ONLY up to three owners who each have more than 10% interest in the company can be workers comp exempt and then, it is only for those listed on the expemption. They MUST have a WC policy if anyone AT ALL works on the project other than the exempt owners. If they don't, it is putting everyone at risk and it is illegal. Also, no longer are "1099" independant contractors allowed. EVERYONE Must either have the WC exemption or have a WC Policy. This is realitively new and subs try to get around it and tell they clients they are exempt and don't explain that only they are and not their workers. Most insurance claims on single family homes comes not from damage to the home (liability) but from damage to a person (workers comp) and if you are dealing with subs without insurance, you are often dealing with less skilled labor, lesser safety precautions and your risk skyrockets. This is one of the biggest risks a rehabber faces. And, if your rehab project is in your name and not an LLC or some other asset protection entity, you open yourself and your family up to a huge risk. Watch out carefully who works on the job with an exemption and monitor it. Good luck.

For once I can post about a GOOD outcome of a potential horror story:

Client bought a duplex needing major rehab. We decided to convert it into a triplex, and in the process gutted parts of the interior to bare studs. The plumber was running all new copper, and managed to get a fire started. The first I know is on the six o'clock news in full color, so I go down to check it out. Long story short, he was licensed, and did have insurance, and admitted total fault, so the client got a nice big bonus check to help out his renovation! SWEET.

I'd say you got lucky, maybe a contractor worth keeping.

It was said earlier "Any reputable contractor carries GL insurance". I would also add "wise" to it. GL insurance to cover work performed in Illinois/Missouri only cost between $800 - $2,000 annually, depending only classification and coverage. Why any contractor would choose not to have it , is beyound me.

For those of you who subcontract work, make sure that you also get a copy of the subs GL certificate and WC, if applicable.

When your contractor is uninsured, there is a big risk that when accidents happen during the building of your house or offices, the company would not be respinsible for any of it.. not like in an insured contractor wherein they would take care of the damages

Originally posted by "marks":
What are the risks of hiring a contractor who is not insured?

Lots of reasons that no insurance is a red flag. Many good replies all ready.

If a contractor can not sort out their insurance and therefore meet the minimum requirements to work in their chosen trade what else is missing? Do they have the tools? Will they show up on time? Will they have car trouble or other things that happen when a businessman is under funded?

Why take unnecessary risks? Focus on finding great deals to make your money. Cut no corners on the maintenance and other aspects. If there is no enough money to do the deal correctly then find a better property.

John Corey

This is from a post at a different forum - I feel applies.

"...Too, we discussed the liability that they placed freely upon themselves for the health and well being of these individuals for any and all injuries had they of been hurt while working for them or with their chemicals.

For added measure I mentioned how the economic system would be further taxed when these persons who had avoided paying social security and taxes would still be allowed to reap benefits from the system at the cost of the taxpayers who did pay into the system (including these customers)...."

If your contractors are not insured, licensed or do not have any of the other mandated paperwork more than likely the 2nd paragraph applies to them as well.

Originally posted by "Houston Contractor":
If someone gets hurt on your property because a piece of drywall, roofing, siding, etc. falls on their head (even if it is after you sold it) they could come back to you and sue you.
.

This is good and very important. Liability - AKA Legal Protection

Also mention was Personal Injury and Worker's Compensation

But, you forgot Projects and Completed Operations. This is key to the owner. It covers to fix the roof if it falls in. To repair the damage if a furnace catches fire and takes out half of the basement and 1st floor joists. To remodel if the plumber does not solder his joints or pressure test his Pex. IOW, this covers you, the owner, to bring the property to complete if faulty workmanship, defective materials, carelessness, or accident occurs.

And another (while I am at it): Automobile Liability What if a vehicle backs into your building? This is usually covered under auto, though some underwriters may call that 'Projects'.

Originally posted by Stewie Lewie:
I was looking up the contractor RGC Builders, Inc. and noticed that they advertise on their website that they have insurance and workers comp, but when I looked up the contractor on the Palm Beach Contracotrs Certification webpage I discovered that RGC Builders, Inc does not have either. Also, the owner, Nicholas Renzi's license runs out at the end of August. How long does it take to renew a contractors license?


Welcome to the forum Steve! The real way to know is to ask the contractor to provide proof of his insurance and his agent contact so that you can be named as additional insured for the project. This is common. Also, chances are his license renewal is already complete and they have not updated it yet. License renewals where I come from have taken all of 5 minutes to go into the city hall and pay the check to renew it. Getting the initial license may take some time, but as with anything, renewals are easier.

You may also want to check into your contractors vehicle insurance. In addition to Liability, Workers Comp, Comm. Vehicle coverage is needed. I just had my insurance guy tell me that my liability has exclusion for loading and unloading the truck.

Insurance is a cost of doing business. As a professional remodeler it is my business to protect my assets and my investors.

You should call a business insurance specialist and request a consultation. Tell them what you are doing and how to protect yourself. When I hire subcontractors I make sure they have "THE RIGHT" coverage. I hate to do it but when I have a good feel for a guy I pay to get the coverage started. I look at it as a deposit.

You will not find ANYONE for $10 an hour with adequate coverage. Be careful protect yourself. On a bigger project a performance bond.

The risk is very costly if someone gets hurt or something goes wrong. Insurance is something that you never want to pay for, but glad you did when needed.

Al

We all seem to make sure that a contractor has General Liability when doing a rehab. But some thing that we most of the time overlook is Workers compensation and commercial Auto.

If one of a contractor's employees falls off the roof on your property and a W/C policy is not in place. That employee can go after you for damages. You must find out if your contractor has Workers comp. If not you need to have an Insurance Waiver form that indemnifies you from any accidents or injuries.

And What happens if your contractor is leaving your job with his company signs all over his vehicle and has an deadly accident at the next corner. He does not have commercial auto insurance, but tells the officer he was working at your house.

Did I get your attention yet? In today's litigation happy society...we have to protect ourselves....Insurance policies are a must

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