Reviewing your homeowners insurance policy can serve as a reminder that you owe a duty of care to friends, social guests, and even door-to-door salesmen. This duty of care is the reason why your policy includes personal liability coverage; however, such coverage does not typically extend to contractors, who must carry their own insurance.
When a contractor does not have adequate bodily injury liability or workers’ compensation coverage, it is often the client who ends up paying the price. If an uninsured contractor is injured on your property, you could be financially responsible for the damages, including medical bills and lost wages.
You can avoid being on the hook for tens of thousands of dollars—or more—by hiring reputable construction teams. Unless you perform due diligence on every individual working under the general contractor, though, you are still vulnerable to financial risk.
When a contractor accepts a large job, they typically delegate some portion of it to a subcontractor. Subcontractors who are not covered under the general contractor’s insurance must purchase their own coverage.
If they fail to do so and an accident occurs on the job site, the homeowner could be liable for the damages. Thus, even when you hire a licensed and insured general contractor, you could end up in serious financial trouble should someone working under them get hurt.
Homeowners can protect themselves from liability by hiring only licensed contractors and confirming the extent of their insurance before the work actually begins. Every state has its own licensing requirements, but all of them have mandatory minimum requirements regarding liability and workers’ compensation coverage.
When you hire a licensed contractor, you may also have some protection under your homeowners insurance policy. For example, if it is a new company that’s still fairly small and they only have the minimum coverage, your own insurance provider might cover the difference; however, if you knowingly hire an unlicensed firm, your policy will not cover any damages that result from an accident on site.
How Common Are Construction Site Injuries?
Because of the dangerous nature of the work, injuries and fatalities are common in the construction industry. According to the Occupational Safety and Health Administration, 21 percent of the worker fatalities in private industry in 2016 were in construction.
Additionally, one in ten construction workers sustain injuries on the job every year. That means if more than a dozen people are working on your property for an extended period of time, it is highly likely that at least one of them will sustain an injury at some point.
When your contractor has adequate liability insurance, you do not have to worry about covering the costs that might result from such an accident. If the team you’ve hired does not have coverage, though, you might have to go so far as liquidating assets in order to cover the damages, which might include:
- Hospital bills;
- Rehabilitation costs;
- Lost wages;
- Loss of earning capacity;
- Home care;
- Pain and suffering; and
- Loss of consortium.
How Can I Protect Myself?
If an uninsured contractor gets hurt at your home, the financial repercussions could be devastating. Fortunately, there are steps you can take to protect yourself before hiring someone to build or renovate a property. They include:
- Asking for proof of licensure;
- Confirming the license is still current;
- Confirming proof of insurance; and
- Confirming proof of coverage for any and all subcontractors.
Contractors that do not carry liability or workers’ compensation coverage have much lower costs than their properly licensed counterparts. This allows them to submit bids that are considerably lower than their competitors’ quotes.
Saving a bit of money might seem like a good idea at the start of a project, but if a catastrophic accident were to happen, it could end up costing a lot more in the long run. As a result, the potential risks of hiring an unlicensed contractor far outweigh the benefits.