Construction Law

Who is responsible for the insurance covering a home renovation project up through completion?

Insurance is meant to protect against risks--and there are plenty of risks inherent in a home remodeling project.

Too often, people do not think about whether they've fully insured their property until it is too late, and they need to file a claim. Needless to say, insurance is a crucial consideration if you are embarking on the construction or renovation of your home. There are several types of insurance to consider.

First, make sure that you have standard homeowners' insurance. This type of policy would typically cover you for unforeseen physical losses that might occur during the course of construction.

Depending on the language of the policy, it could cover a wide variety of events--such as damage from an accidental fire set by a negligent contractor who was attempting to fix your electrical wiring. It might cover a situation where a contractor or worker steals something valuable from your house while working there, or the contractors' own tools are stolen by someone else. Or, it might cover your liability costs if a neighbor visits your home during construction and slips on your contractor’s toolbox. All of these damages can be incredibly costly, but most standard homeowners' policies would address them.

Second, homeowners should purchase a separate insurance policy for the general contractor. These are sometimes called “course of construction” or “builder risk” policies. Essentially, they make sure that the contractor would have the resources to pay you if the contractor causes certain types of damage to your house or property. Without insurance, you take the risk that the contracting company might be insolvent. (Note that, depending on the type of contractor and the type of construction, the contractor itself might hold the "builder risk" policy and pay the associated costs, but you should verify this before the start of the project).

You should also verify that your contractor has a workers' compensation policy: one that includes any subcontractors working for that contractor. You would not want a situation where unpaid subcontractors are coming directly to you for payment if the general contracting company defaulted on its payment obligations.

For all policies, you would be wise to verify the ending date for the coverage. You would not want to be in a situation where one or more policies expires during the course of your construction project.

Reading the fine print of contracts is always important, but when it comes to insurance provisions, that importance is even more pressing. If you are uncertain about the validity of either your contractor’s policies, or your own, consult an insurance agent or attorney before work commences.

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