Got Insurance?

Insurance is like a hard hat – a good choice on nearly any construction project. But many contractors don’t have full coverage. Let’s take a realistic look at a contractor’s insurance options.

We’re talking about two types of coverage; liability insurance and workers’ compensation insurance. Liability insurance protects the general public. If there’s a loss and if the contractor is at fault, the liability insurance carrier steps in. Workers’ comp covers employees injured on the job.

States set up three roadblocks to slow any contractor trying to operate without full coverage:

• Classification rules.
• Licensing laws.
• Contract disclosures.

 Classification: All states require workers’ compensation coverage for employees. But notice the word employees. Subcontractors are not employees. Just calling someone a sub rather than an employee doesn’t make it so. States and the IRS have rules on what makes someone a subcontractor rather than an employee. See my blog post for practical guidance. Misclassification can earn an employer fines and even a prison term. That’s what happened recently to the owners of Triple Star Roofing in Northwood, Ohio.

Triple Star had between 30 and 50 roofers working their jobs. Management considered all to be subcontractors. Most were paid weekly. Triple Star reported no employees. That saved Triple Star plenty on workers’ comp premiums. But it also exposed the owners to a five year prison term and a $10,000 fine for misclassifying employees.

Licensing: Where a contracting license is required, applicants usually have to show proof of insurance for both liability and workers’ comp. For example, Rhode Island requires liability coverage of at least $500,000. There’s no way around that. But a contractor who has no employees doesn’t need workers’ compensation insurance. That’s true in every state. I’ve seen estimates that 60% of all license applicants in California claim to have no employees.

Contract disclosures: Some states now require disclosure of both liability and workers’ comp coverage in contracts for residential work. Here’s a summary:

• California requires disclosure of the name of the carrier and the policy number on home improvement jobs.
• Florida – Miami-Dade County requires disclosure of insurance coverage in residential repair, remodeling and home improvement jobs.
• Idaho – Contracts for residential work have to disclose that the owner has the right to see proof of insurance coverage.
• Maine – The contract has to include a statement suggesting the owner ask the contractor about compensation and liability coverage.
• New Jersey – The contractor has to either confirm liability and compensation coverage or admit that no coverage exists.
• Oklahoma – Contracts that include roofing have to either confirm that workers are covered by compensation insurance or include a written statement advising that workers do not have coverage.
• Rhode Island – The contract has to disclose that the owner can demand a certificate of insurance before work begins.

What’s the penalty for failing to make required disclosures? In some states, the contract is unenforceable. In other states, it’s a violation of the state’s consumer protections laws. That can be a felony and may come with jail time.

No matter what you decide to do about insurance coverage, you’re better-protected with a professional-grade contract. Construction Contract Writer offers good options for both insured and uninsured contractors. The trial version is free.