Many contractors advertise that they are bonded and insured. Should that provide peace of mind for the consumer of construction services? The simple answer is both “yes” and “no.” Not so simple, is it?
The Contractor’s License Bond
Every contractor in the State of California must have a contractor’s license bond. Unless the contractor is bonded, he or she can not hold an active license.
The amount of the bond for contractors is only $12,500. The purpose of this bond is to provide some protection for those dealing with the contractor, in the event the contractor fails to do certain things. That is not to say that in every circumstance will the bonding company be liable for the failure of the contractor. Some examples where the bond could be liable to pay the contracting party is when…
- Subcontractors have not been paid.
- There are violations of building code requirements
- The project is abandoned.
- The contractor fails to complete the project for the contract price
- Funds have been diverted away from the intended project.
To recover from the bond, a bond claim must be presented to the bonding company. Information about the contractor’s bond is available from the contractor or from the Contractors State License Board.
Liability Insurance
Liability insurance is an optional insurance for contractors. However, if he is going to do any work on your home or construction project, a contractor is obligated to provide you with a form that indicates whether he carries liability insurance and who the carrier is, along with a contact telephone number.
Beware of the contractor without insurance. General liability insurance will generally only cover injuries to people caused by the acts of the contractor and property damage. This insurance does not cover the actual work performed by the contractor, or any dispute with the contractor over the quality of his work.
Liability insurance has limited protections except when someone or something gets injured or damaged by the contractor or his subcontractors. If you want financial protection that the job will be completed, then the appropriate coverage is through a performance bond. This bond can be called upon to pay for the completion of the project if necessary. You can ask a contractor to provide for this bond; however, the project owner can expect to pay for the placement of that bond.
Workers’ Compensation Insurance
This insurance protects the contractor’s employees if they are injured on the job. If a contractor does not have employees, then there is no need for worker’s compensation insurance. However, if even temporary employees are on the job, this insurance is necessary.