By Greg Strahl
Your home is your castle. It is the biggest investment you will ever make, and your sanctuary away from a hectic world. So, when you decide to undertake a renovation it is a very big deal. The planning process alone can take months and involve a million choices and decisions. When it finally comes time to turn over your castle to a contractor who will knock down walls, rip out old wiring and perhaps make structural changes it is important that you ask for proof of insurance. Hardly a new idea, but few homeowners know what exactly to ask for, and just as importantly, why they should ask for it.
Here are five important things to consider when asking for proof of insurance from a contractor:
Reputation is everything
You want to deal with a reputable contractor, right? But how do you determine if the person in front of you has a good reputation?
You can and should check references from previous clients. Another barometer is whether or not they have valid commercial liability insurance. If they don’t you have to ask yourself, why not? Were they unable to buy insurance for some reason? Do they not care enough about their business to purchase appropriate coverage, both for their protection and yours? Whatever the reason, it is a bad sign if they do not have proper insurance. The underwriting process that insurers engage in prior to issuing a policy can give you some confidence that the contractor has been vetted.
Who’s got the deep pocket around here anyway?
Sometimes bad things happen to good people. What if a contractor starts a fire while working in your home? Does she have the financial wherewithal to “make things right?” The answer is: probably not. This is why it is critical that any contractor working on your home carry a commercial general liability (CGL) insurance policy. It will provide the contractor with a financial backstop to ensure they can meet their legal obligation to you, the injured party. Any reputable contractor will generally have a minimum of $2,000,000 in coverage, and some have even more.
Look at all this shiny new stuff!
You know that beautiful new bathtub you ordered specially from Italy that took 8 months to arrive? Or the custom-built kitchen cabinetry handmade by the finest craftsmen from rare hardwoods sustainably harvested from fair-trade sources in the Congo?
Who’s going to replace all that stuff if it burns to the ground two days before you are supposed to take possession? Your homeowner’s policy may not extend to a major renovation. In these instances, you should consider asking your contractor if they have purchased a Builder’s Risk insurance policy. It would provide coverage for all of the materials and equipment which will go into and form part of the finished project. In smaller renos the contractors themselves may have coverage for the materials, but you should give consideration to this risk, one way or the other.
The proof is in the pudding
Or in this case, it’s in a certificate of insurance. Regardless of the size of the job you should ask for a certificate of insurance from any contractor that is doing work on your home. Contractors receive requests for proof of insurance all the time. They should be happy to provide you with a certificate, after all it shows them to be professional business people. Not only that it doesn’t cost them a penny to provide the document to you. There are several elements which ought to be present in a well-structured certificate of insurance, and are beyond the scope of this article. We suggest that you seek the advice of your insurance advisor prior to beginning the project. They should be able to assist you in reviewing the contractor’s certificate, and also advising you with regard to your current home policy and how it may be impacted by the renovation.
That guy lying at the bottom of the ladder is probably NOT taking a nap
Construction sites can be dangerous places. Workers can be injured. Innocent by-standers passing the site can be hurt by falling objects. You as the property owner can be held liable under certain circumstances. It is important that you ensure your own liability exposure is covered. You should review your homeowner’s policy to determine if it will protect you in the event an injury occurs. You may also consider buying a “Wrap-Up” liability policy. This type of policy often goes hand-in-hand with Builder’s Risk insurance and it provides a uniform amount of coverage for ALL project participants. In that way, you have absolute certainty that you and all of the contractors, sub-contractors and sub-sub-conctractors are covered by a liability insurance policy. The amount of coverage purchased is up to you, but generally starts at $2,000,000 and goes up from there.
If you are planning a renovation to your home be sure to consider the risks involved. Any reputable contractor will have insurance and should be happy to provide you with a certificate. Finally, don’t be shy about calling your insurance broker and asking for advice. You should be advising them about the change in your property anyway, so take the opportunity to seek assistance in reviewing the contractor’s insurance policy.
Greg Strahl is a partner with Palladium Insurance.