Hiring contractors? Do you require them to be insured?

Question

Good morning! I was curious if everyone requires insurance policies for anyone doing work on there home or only for higher risk projects? If the worker doesn’t have general liability and worker’s compensation insurance and they hurt themselves on the job would it hit our general liability insurance?

Luke Sass · Answer

@Dana Winer

Yes if their a reputable contractor they will have the gl and a comp policy.  Mitigate your risk with a written contract.  You can also buy a builders risk policy while the property is under construction but it won’t protect you against them getting hurt.

Tell them you want to be named as additional insured in their policy and have them send you a copy of the certificate showing that.

Best of luck

Account Closed · Answer

At minimum a trade type liability insurance.  However, I make all my subs carry both GL and workers comp.

A few real life examples:

A plumbing repair can leak and do a lot of damage, thousands of dollars of damage.  Story is too long to post here but the plumbers' insurance had to pay to tear out and reinstall approx. 650 sq. ft of hardwoods, plus base and shoe mold.  Ouch!!!

A tile guy can tile your shower, inadvertently cut a hole in your pan liner and due to leaky pan liner ruin the drywall below the shower area - cost to tear out and retile the shower pan area, repair the drywall underneath and paint the entire kitchen ceiling $3,500.

Trim guys installing base, shoots a nail and hits a wire (or a water line).  Have had both happen.  Neither the original electrician or plumber (years back) installed a metal nail guard where the water/electric came through the  bottom plate.  Several hundred to repair the electrical, a couple grand to repair the water line and the damage the leaky water did.

In every case the sub had liability insurance.  All but one willingly did the repair work - the tile guy refused.  I had the tile guy's insurance and was a cert holder so I told him I was going to call his insurance company and make a claim.  He was at the job the next day and did the work (and I was there making sure it was done right!)   But had one or all refused to do the work, I would have made a phone call to the insurance company to file a claim. I was not going to pay for the work nor would I expect the owner to be left holding the bag.

And as mentioned above, there are really SO many scenarios and ways to cause damage to a home that to hire anybody without at least liability would be a very unwise choice.

Account Closed · Answer

@Dana Winer

What do you consider to be basic work?

Account Closed · Answer

@Dana Winer

Always, always, always make sure your contractor has insurance! Get their insurance provider to email you a copy and have your name added as a certificate holder.￼

Jason Bott · Answer

@Dana Winer you will want to ask to price out Workers Compensation.

Ask for a "If Only" policy.  This policy will provide coverage for uncovered contractors IF they don't have their own work comp policy.

You need to watch this carefully because you incur the premium throughout the year. There will be a premium audit at the end of the year where the insurance carrier will tally up all uninsured payroll and bill you for it.  If you overestimate the payroll you will have, you would then get a refund.

Dana Winer · Answer

@Jason Bott very helpful thanks!! We are contacting our insurance agent today to see about adding to our policy. We have a liability policy for our business and umbrella but sounds like we would need something focused specifically on workers to cover incidents if we chose to go with someone who didn’t carry there own liability and worker’s compensation insurance

Jason Bott · Answer

@Dana Winer

From a risk standpoint, if you don't require insurance of your contractors, they are basically your employees.  Anything they do wrong, damage, burn down, the cost to fix it is can, and most likely will, come out of your wallet.

Example of some of the risks you face when contractors are working on your property,

1)  Claims caused by the contractor for which they don’t want to take responsibility.  Ex. Left a propane heater in the home and it explodes.  No way the contractor can pay for the house.  (1 of my clients had this claim in Nov 2019).

2)  Bodily Injury claims (contractor or contractors employee) gets hurt and doesn't have work comp.  In this case you can become the employer by law and can be held responsible for their medical bills.

3)  Future claims stemming from faulty workmanship (e.g., new roof from last year starts leaking and the contractor is out of business)

If you have a solid Independent Contractor (IC) agreement in place, you can push all of these risks back on the contractor's insurance program.  The IC agreement should list the following to improve the risk transfer from you to the contractor,

1)  Listing of insurance coverages and limits required for subcontractor to start work

2)  You and your entity being listed as an “Additional Insured” with the subcontractor’s policy

3)  Requirement that the certificate of insurance comes directly from the subcontractor’s insurance agent (Too many times I’ve seen doctored certificates with a post-policy-cancellation date or modified limits)

4)  Right for you to withhold payment for work performed if proof of insurance coverage isn’t provided prior to starting work

Jeremy Goodrich · Answer

Agree with @Michael Noto.  Always require.  Contractors are used to being asked for a Certificate of Liability Insurance.  They can make the request to their insurance agent who should be able to send it within 24 hours.  The most basic coverage they need is $1,000,000 of General Liability coverage per occurrence.

You want them to have this in case they do any damage to your property or your tenants.  If, for example, a tree contractor drops a tree on your property.  Their liability coverage would handle it.  If they don't have any, you're chasing them personally for the cost of repairs.  Same goes for poor workmanship that causes a problem, a ladder falling on a tenant walking by, a fire caused by faulty wiring, etc, etc.  An insurance company is going to handle any of these issues way better than trying to chase the contract for $10k in damages.  A contractor that doesn't carry insurance is saying to you that they don't value your investment.

Dana Winer · Answer

@Mike Waller interior painting, laying flooring, bathroom plumbing repairs. Nothing involving ladders. What type of insurance do you want to make sure they have? For example, if they go to ER medical insurance would cover that but I’m guessing there is a specific liability insurance you look for?

Dana Winer · Answer

@Mike Waller even for basic work? What sort of insurance do you require they have?

Hiring contractors? Do you require them to be insured?

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