Lately social media has me pondering General Liability and Workers Compensation insurance education. This week on the Facebook group, “I Know a Place in Knoxville” someone asked a great question about hiring contractors who are not insured. She wanted to know the risks associated with hiring a house painter without liability insurance. Contractors, repair people, and anyone who works in your home or on your property should have General Liability and Workers Compensation coverage. Several people (with no insurance experience) offered great comments. Because I am an insurance professional and I’ve witnessed many bad outcomes from this same scenario, I weighed in. I also gave her my personal phone number. Today she called. She had hired this painter previously, and he did a great job. Because his painting skills and work ethic were top notch, she generously thought she might pay half of a General Liability policy for him. She now knows that she should never hire a contractor who doesn’t have proper insurance coverage.
Homeowners regularly need assistance with updates or home repairs, so they hire contractors to complete the work. This opens the homeowner to a number of risks. I want to layout several important items to consider when hiring contractors.
First, a homeowner can be sued if a contractor is hurt while on the homeowner’s property. This can happen if a contractor does not have workers compensation for them self or any subcontractors they hire. I’ve seen this occur over and over. Unfortunately, these contractors generally work much cheaper because they choose to not pay workers compensation, general liability, or property insurance premiums. BUT…the total cost to you, the homeowner, can be much higher if the contractor reports a claim on your homeowners insurance policy. When you hire a contractor who does not have proper insurance coverage, you are assuming the risks for their work mistakes and any injuries that may occur at your home.
The Cheapest Proposal
Let me share several real-life situations that my clients have encountered. One client signed an agreement with a contractor to repair a water leak in her basement. This contractor’s proposal was far cheaper that the other bids she received. Before the contractor could begin work, my client’s Homeowner’s Association requested the contractor’s workers compensation and general liability insurance information. She contacted him to get proof of coverage and learned he did not have workers compensation coverage. He then declined to complete the job because the workers compensation was “too expensive”. His proposal for the work was $4000 cheaper than any other contractor, and the reason was obvious after the fact. Now my client must go through the bidding process again.
I also had a client, a doctor, who hired a roofing company to replace his entire roof without confirming the contractor’s insurance coverage. On the second day of installation a worker fell from the roof and died in front of the homeowner. The roofing company did not have workers compensation for the employee. The client was lucky he did not lose all of his assets in the lawsuit. Fortunately for the doctor, we had insured him with $500,000 in liability, and he carried a $1 million umbrella policy.
Another client had trees removed from their property and did not confirm insurance coverage for the tree removal company. A limb cut by the contractor fell and landed on one of its employee’s vehicles. That employee filed a claim against my client’s homeowners insurance even though the damage should have been covered under the employee’s comprehensive auto coverage. Because the employee did not have comprehensive auto coverage, he tried to recoup his losses from my client. My client’s home insurance did not pay the claim, but it did show as a $0 paid out claim which resulted in my client losing their 10% loss free discount.
Two doctors who were new clients hired a cleaning service from a Groupon advertisement. When we met for our new business appointment, I advised them to use only companies who could provide proof of general liability coverage and workers compensation. Against my advice, they hired the cleaning company without confirming insurance coverage. An employee from the cleaning company stole two laptop computers and a very expensive camera from my clients. Trying to help my clients, I called the company owner to pursue recouping the loss from his General liability coverage. General liability covers theft by employees. He didn’t have general liability, nor did he have a bond. This was an expensive lesson for my clients.
Many contractors say it is not a big deal, and they would never sue you, but if a life changing event occurs, they are looking for someone to make them whole. Do you think a permanently disabled contractor would pass up the chance to sue your homeowners insurance policy for $300,000 or $500,000? These contractors do not take the time to protect themselves and their families before a claim happens. Yet, they are looking to protect their families after the fact with your insurance coverage. What if the contractor dies on the job like in my doctor scenario? Don’t you think the family would want to replace the lost income of the wage earner?
Accidents occur far too often. If a contractor does not have workers compensation or General Liability, who will pay the extra damage to your home? If a water main line is accidentally punctured, who repairs your floors, your walls, your ceilings from the additional damage? Do you expect a contractor who couldn’t be bothered to purchase insurance coverage up front to now pay additional money to make you whole? Who will pay for the replacement materials? Will you be forced to report a claim on your home policy? Who will pay the deductible? Will you take the contractor to court to recover the damages? Who pays the attorney fees? There are so many questions and not any good answers!
The Best Defense
The best defense for problems with contractors is to do your homework upfront. Make certain they have the proper insurance coverage before any work begins at your home or on your property. When acquiring work estimates, ask about the company’s insurance coverage especially general liability and workers compensation. Know if they are properly protected before you get too far along in the process. Also, if you’re using a General Contractor, make certain any sub-contractors they hire have insurance as well. I personally wouldn’t let someone change a light bulb at my home if they could not produce proof of insurance. Make informed choices ahead of any contractor work at your home!