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Question:
As homeowners we are always advised to check a contractors insurance. How do we know what to check? What kind of insurance should they have anyway?
Answer:
I am so glad you asked that
question. Uninsured Contractors cost homeowners a great deal of money every year, and the sad part is that the homeowner doesn't realize the extent of the risk they are taking when hiring a less than reputable Contractor.
Here's the story: Mr. and Mrs. Homeowner hire Bob over at Slamitup Contractors to remodel 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 Workmen'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 underinsured. 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, NARI
can't do it - only you can do it. Make sure your Contractor has Liability AND Workmen'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. Workmen's Compensation is a very large chunk of a legitimate Contractors overhead because very expensive injuries occur on job sites every
day.
At this writing the Work Comp rate for an exterior carpenter in Wisconsin is $12.73 per hundred. That means that if a Carpenter makes $35,000 per year, his employer must pay $4,455.50 to the State per year to
insure just that one worker. Now you can understand why Work Comp is avoided by so many Contractors, and makes legitimate Contractors more expensive.
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.
Answered by: Patrick Benkowski, CR
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