FOR IMMEDIATE RELEASE
September, 2003

Home Remodelers Often Risk Financial Exposure 

Planning to Remodel, Take This Quick Quiz
 

Before you hire a contractor, ask to see their:

1. References
2. Power tools
3. Proof of insurance                          

New Orleans , LA – According to Don Beery , vice president of Eustis Insurance & Benefits of New Orleans , checking a contractor’s references is always a good idea, and it’s nice to know they have power tools. However, making sure your contractor has appropriate insurance can protect your assets during a renovation and ensure that you are covered after the job is complete.  With fall’s cooler temperatures sure to spark the remodeling bug, Beery advised on how to avoid any insurance “fall-out” while remodeling. 

“An agent can help you decide how much the renovation will increase the value of your home as well as provide insight on additional coverages you may need at the beginning of the renovation and upon its completion,” says Beery.  “We can also determine if your contractor’s certificates of insurance provide appropriate coverage for the work being done,” Beery adds.

Whether you hire a general contractor to oversee the job or manage the work yourself, you are likely to find your home full of sub-contractors (plumbers, carpenters, painters, etc.) who will work on specific parts of the project.

According to Beery, when you hire a general contractor there are two primary types of coverage you must require the contractor (and subcontractors) to carry: worker’s compensation and general liability.

1. Worker’s compensation insurance provides coverage to the workers (the general contractor and his/her employees) for job-related injuries. Worker’s compensation is required by most states and is usually governed and regulated by each state’s lawmakers.

2. General liability insurance covers a negligent act or omission that results in property damage or bodily injury (to someone other than the general contractor, his/her employees, and the subcontractors he or she hires).  

Both of these forms of insurance cover the policyholder (in this case the general contractor) because s/he is the first person to be found liable if something goes wrong. However, the premises where

the work is being performed belongs to you and if the general contractor fails to carry appropriate insurance, an injured party is likely to sue you as well. 

Depending on the type of renovation planned, your general contractor may also need to provide a builder’s risk policy. This coverage protects your existing property and the new construction during the course of the renovation, as well as uninstalled appliances, cabinets, carpet, and other items related to the renovation.

Beery advises asking for a copy of the worker’s compensation and general liability certificates of insurance when hiring a general contractor or subcontractor.

Make sure the following details are on the certificates:

• Effective dates of coverage (If they are about to expire, request an updated certificate.) 
• Name of insurance company 
• Name of insurance agent  
• Amount of coverage purchased (called limits) 
• Names of insured parties (Check to make sure the general contractor’s name appears. A sole proprietor can exclude himself/herself from his or her own worker’s compensation policy.)

Beery warns that if you decide to take on the job of general contractor, you also take on the liability. Your coverage needs can vary greatly depending on the extent of the renovation, and the number of people who will help you do the work.

Each of the following situations could trigger the need for insurance coverage beyond your existing homeowner’s policy: 

• Hiring subcontractors  
• Hiring paid help 
• Using non-paid help such as family or friends  
• Potential loss or damage to building materials prior to use

You may require additional insurance coverage, says Beery, if the planned renovation opens your home to the elements. “Tearing down exterior walls, replacing windows, doors, a roof, or a chimney can leave a home exposed to theft and weather damage liability. Most homeowners’ policies do not cover this kind of exposure when it is created by the homeowner,” states Beery.   

A contractor’s bond ensures that the work will be completed or that you will be compensated. It is proof of financial responsibility. It does not insure the quality of the work, or protect you against theft or damage.

As some renovations increase the value of your home significantly, others do not. Beery recommends an insurance review with an agent prior to the beginning of the project to make sure the existing homeowners’ insurance is providing the correct protection for a soon to be newly updated home.  

Beery also notes that if you plan to leave your home for more than 30 days during a renovation, you could be jeopardizing your homeowners’ insurance. Check your policy for vacancy clauses. You can most likely purchase additional coverage if needed.