Following is a document you can use when competing with an uninsured contractor.
Many businesses and individuals use independent contractors. While the owner is usually not liable for the actions of that independent contractor, third parties can and do make claims or sue the owner based on the actions of the independent contractor. Whether such a claim has merit, doesn’t keep the owner from being sued.
Working with an uninsured contractor is very dangerous and can be extremely costly. As a general contractor or project owner you are opening yourself up to all the liabilities of the uninsured contractor performing your work. Those liabilities include:
3rd party Liability – There are many liabilities assumed by a contractor when they are working on your property. As soon as they set foot on your property they have a responsibility to work safely and protect the public. If they are negligent in a duty and harm the public in any way you as the general contractor or project owner will be named in a lawsuit. Often the homeowners policy will not protect you in a lawsuit involving an uninsured subcontractor.
1st party Property – You are entrusting your house to the contractor, it is in their care, custody, and control. Your homeowners liability policy will not respond to a loss, whether it is an act of god or a negligent act of your contractor. You should make certain that the contractor has proper coverage for your house. It should be more that a transportation policy and more than a legal liability policy. It needs to offer care, custody, and control coverage
Workers Compensation – Any injury that occurs to an employee in the course of employment is considered a workers compensation injury. A contractor who has employees working without workers compensation is putting everyone involved in the project at risk. The general contractor, project owner or the homeowner can be held responsible for injuries to subcontractors employees.
When dealing with contractors it is important to make certain that they are properly insured. Before signing a contract you should ask for a certificate of insurance. A certificate of insurance outlines the coverage’s afforded by the contractor’s insurance policies. Once you have a copy of the certificate have it reviewed by an attorney or your local insurance agent.
Following is a real life example of the cost of doing business with an uninsured contractor:
Mr. and Mrs. Homeowner hire Bob over at Slamitup Contractors to move their home. Bob appears semi-professional, has done a lot of work in the neighborhood, and is quite a bit less expensive than other Contractors. Bob is a sole proprietor, and therefore is not required to have Workman’s Compensation insurance by law. Bob asks Mr. & Mrs. Homeowner to acquire any necessary permits and they do so without any questions.
Slamitup Contractors show up the first day with a crew of 3 and begin work. One of the crew slips off a ladder and falls breaking his hip. It turns out the injury is quite serious and the worker may never walk properly again. Since Slamitup Contractors was not insured for work related injuries for anyone except Bob, the worker and his family sue everyone in sight including Mr. & Mrs. Homeowner. Here’s where it gets scary.
Mr. & Mrs. Homeowner had not updated their insurance policy in years, and were grossly under insured. It turns out that the cost of the workers injury, therapy, lost wages, and pain and suffering will run 3 times over the limit of the insurance that the homeowner had. But why not sue the Contractor? They will, but he is uninsured, and has no tangible assets to speak of except that station wagon with the fake wood on the side. After all, he was a very small Contractor who was paying all his workers cash to keep his price low.
Well, the Homeowners insurance Company paid out the limit of the policy but informs Mr. & Mrs. Homeowner they are on their own for the rest. Needless to say, the litigation goes on for years and the expenses tap out Mr. & Mrs. Homeowners savings, retirement fund, and they may even loose their home and property if the lawyers have anything to say about it.
The moral of the story? Even though Bob at Slamitup was a good guy and never intended for something like this to happen, it is up to you as a homeowner to protect yourself. The City can’t do it, The State can’t do it – only you can do it. Make sure your Contractor has Liability AND Workman’s Compensation insurance as a minimum before they take one step on your property.
Require that you receive a certificate of insurance listing you as the certificate holder before you sign anything, and go over it with your insurance agent if you don’t understand it. If your Contractor is a sole proprietor, ask to see insurance certificates for every other person who works at your home. Don’t let low price blind you into taking a huge risk. Workman’s Compensation is a very large chunk of a legitimate Contractors overhead because very expensive injuries occur on job sites every day.
Although I am sure it is true that many uninsured Contractors complete many jobs every day without incident, do you feel lucky? Don’t take the chance; make sure your Contractor is properly insured.