Remodeling tends to increase around this time of the year. Some homeowners are willing to be do-it-yourselfers and actually do some tasks while hiring licensed subcontractors for plumbing and electrical work and some will hire a general contractor.
However you choose to remodel, keep this in mind: The homeowner, the general contractor and the subcontractors—plumbers and electricians, for example—all need insurance coverage.
Review your homeowners insurance
Contact your home insurance carrier to confirm whether your policy covers your home and property while it’s being remodeled.
If you’re planning to do the work yourself, your first call should be to your insurance agent. Some remodeling projects if not undertaken correctly may void your homeowners policy.
Make sure the contractor is licensed and bonded
After you’ve selected a general contractor (GC) but before you sign a contract for the project, be sure that the GC is licensed and has a surety bond. If the GC can’t finish the job for some reason—illness or bankruptcy, for example—the surety bond will cover any financial losses the homeowner incurs in getting the job finished. Your contract with the GC also should agree that all the work will be done according to current building codes and all permits will be obtained.
The GC is responsible for property damage, injuries on the job site and negligence in workmanship, which should be covered by the GC’s general liability and worker’s compensation insurance. Ask to see the certificates and check that the coverage will be in effect the entire time that work is being done.
Confirm the contractor’s liability coverage
Many contractors have general liability (GL) insurance designed specifically for remodelers, which covers the GC for accidental injury to someone other than a worker or himself (many GCs are small businesses, operated by their individual owners with a few workers). For example, a delivery driver may trip over the GC’s materials and be hurt in your driveway. The GC is responsible for that injury, not you.
Buy a builder’s risk policy
Generally, building materials and equipment belonging to the GC or subcontractors aren’t protected from theft by your homeowners policy. Ask your agent whether you should buy a builder’s risk policy for the length of time that the construction is ongoing. This policy would cover any of the construction equipment or materials that are left on your property before they’re installed. With the high cost of copper, thieves target construction sites, looking for copper plumbing pipe, for example.
The contractor’s GL policy also covers damage to your existing property, but not any new work the contractor does. You may be enclosing a deck to add a new room, for instance, and the new electrical system malfunctions after the electrician installs it, causing fire damage to both the existing house and new space. In that situation, the GC’s liability policy covers damage to your old home, but not the new addition, even though the GC is liable for damage to the addition as well.
A builder’s risk policy covers situations like this one, and makes sure that the project is completed. The GC or the homeowner can purchase the policy; however, the named insureds usually include the homeowner, the homeowner’s mortgage company, the general contractor, the subcontractors and the lender if the project is being financed.
Confirm subcontractors’ insurance
You also should confirm that the subcontractors carry workers’ compensation coverage of their own or are covered by the GC’s policy. If a subcontractor is injured on the job at your site, you don’t want to be liable for the injuries.
Each subcontractor should carry its own liability insurance, and many policies are designed specifically for the kind of work the subcontractor does and the risks from that work. The GC should require the sub to name the GC as an additional insured on the sub’s policy. This allows the GC to speak with the sub’s insurance company directly in case of a claim. As the homeowner, you should ask the GC about the subcontractors’ insurance coverage and ask to see coverage certificates if you have any doubts.
Determine adequacy of policy limits
Adequate insurance coverage includes the limits of the policy, not only whether there is a policy in place. General liability limits vary, but most general contractors carry a $1 million limit. Depending on where you’re located, and the size of the project, this amount may not be enough.
As the homeowner you should review your policy limits as well. Are the limits for bodily injury and property damage high enough to cover the risks from your remodeling project? Do you and the GC each need an umbrella policy? It’s not uncommon for injured workers to file claims against the homeowner and the GC.
Confirm completed operations coverage
Completed operations coverage provides insurance for things that can go wrong after a job is done. For example, in my second floor addition, the plumber installed a bathroom without insulating pipes located in an outside wall and above a garage. When the pipes froze the next winter, the contractor had to open walls, repair frozen, burst pipes, add insulation, and repair and repaint the walls. The contractor also installed a heater in the garage to mitigate the risk of future frozen pipes.
Consult your agent
There are so many variables to insurance coverage for home remodeling projects, some mandated by state law, that you and the GC should consult your agent before starting the project.
As the homeowner, remember to speak with your insurer about increased coverage for the value of your property after it’s been remodeled. A two-story colonial is worth much more than a single-story ranch-style house.
Please contact our office with any questions related to your remodeling project.