California Contractor Insurance

Three Hidden Risks to Watch Out For When Purchasing California Contractor Insurance

The State of California has contractor insurance requirements that necessitate locating a reliable and knowledgeable insurer. California contractors often find themselves in very complex business relationships and need insurers to recognize their contractual demands.

Crafting the right insurance plan for each set of project requirements requires the contractor to understand their business, its obligations, and its risks.

Most contractors know the basics of insurance – general liability, workers compensation, auto insurance and bonding. But have they explored the nuances of their obligations? Here are some less obvious risks to consider when planning contractor insurance in California.

Identifying Less Obvious Risk

Risk is always part of a construction project and can be broken down according to the participant’s role – subcontractors, employees of the general contractor, the owner of the project, the general contractor. Typical risks such as not being paid on time, injury to a worker, or lagging on time frame requirements should all be addressed in the contractors general construction agreement and sometimes partially in the insurance policy when the issue is workplace safety and negligence by the contractor.

Less obvious risks are ones that can take a big bite out of the contractor’s bottom lime and can have even ruin a contracting business if not planned for. Consider a few of these risks:

1. Defective products
2. The construction contract
3. Cost of litigation

Defective Products

The obligations of a California contractor go far beyond the obvious. For instance, an electrical contractor is a sub-contractor on most projects and will be responsible for his or her direct work. In a litigation situation, everyone involved becomes responsible. The electrical contractor can be sued if something goes remotely wrong around anything they have worked on.

For example, a ceiling fan that ignites may be due to a defective product and certainly the manufacturer is ultimately responsible. But the electrical contractor, the manufacturer, the project owner and the general contractor will all be included in the litigation. Without the proper insurance, the electrical contractor could have big financial obligations before the litigation is resolved.

The Construction Contract

The construction contract should be carefully read and reviewed by a lawyer before a contractor signs it. Contracts can hold hidden fees, liabilities and responsibilities. Unless the contractor is understood to be a binding document and read carefully, a California contractor’s insurance obligation may not be met correctly. This can result in a situation on your existing insurance cannot cover.

Litigation Is Costly

Additional contractor insurance considerations should include insurance protecting the contractor against the cost of litigation. Someone will have to cover the cost of lawyers and the contractor’s time away from work during litigation. Insure against the cost of defending your position and add insurance to protect your financial future.

A poorly wired home, an exploding ceiling fan, a falling structural component, or defective products can cause numerous problems. Defects can be discovered during construction, soon after construction or years after construction. Long term insurance planning can protect the contractor.

Incorrect product installation, a misreading of construction documents or a miscalculation about a product and its capabilities can all have disastrous results. Whether you are well-versed general contractor, a handyman, or a C-licenses contractor, every contractor in California should be insured.