By Doug Hanna
Remodeling your home or building a new one is always very exciting. The anticipation of finally having your “dream house” can sometimes overshadow some of the issues that tend to get lost in the shuffle. Yes, it is critical that you use a contractor, architect, and designer that are a good fit for your project. But in the process, it is critical that you make sure your “team” – specifically your contractor, carries the appropriate insurance. Proper insurance is the “safety net” that protects everyone involved.
There are two types of insurance that all contractors should carry: Worker’s Compensation Insurance and General Liability Insurance.
Worker’s Compensation was actually created by large corporations early in the 20th century, in order to limit their liability from lawsuits filed by employees for work-related injuries. The unions at the time were opposed to Worker’s Comp for just that reason. Worker’s Comp protects not only the employer but also the property owner, from liability, in the case that a worker is hurt working on the job. In my experience, most people are not aware of the importance of asking about the contractor’s Worker’s Comp policy. Most building departments now require Certificates of Insurance for Worker’s Comp and General Liability and require they be submitted with building permit applications. They don’t, however, verify that the insurance covers all workers on-site. Did you know that there are actually two types of Worker’s Comp available in Massachusetts? One covers all workers, except for the owner of the company, and the other type covers all workers, including the owner of the company.
The first type is often purchased by sole proprietors without employees, or with very few employees. This type of insurance is basically useless if the only person or the most important person on-site worker is not covered. It also means that if the person not covered is in fact injured on your property, a lawyer or next of kin may be looking at the home owner’s assets for relief. The mysteries of why this type of insurance is still available and still allowed in the Commonwealth reside with the State Insurance Board. In my opinion, it is essentially an option to weasel out of paying for Worker’s Comp. To completely protect yourself from liability, also make sure that you have a written and signed a contract with the contractor for the project as well as standard homeowner’s insurance in place. (By the way, Worker’s Comp rates, at about 10% of payroll for carpenters here in Mass., are artificially low. Many large insurance carriers have opted out of selling Worker’s Comp in the state. Even our “Live Free and Die” neighbor, New Hampshire has higher rates than Mass.)
It is best to ask about Worker’s Comp before hiring a contractor. But if you’ve already hired someone for your project and find they don’t carry the complete coverage you feel is necessary, it is not that difficult for a company to change their WC policy to the right kind. It only takes a few days.
General Liability Insurance protects the homeowner in the event the contractor does something such as burn the house down, cause a flood, drop a bucket of paint on a passerby’s head, etc. While this may seem pretty straightforward, there is some very convoluted language in General Liability policies. One of my favorites is that the policy will not cover for damage caused if someone is in the act of performing the task in question. So for instance, if your carpenter hits a nail and it ricochets across the room and shatters a mirror, he’s covered. If he’s installing the mirror and it cracks or he drops it, he’s out of luck.
One thing we’ve learned over the years is that insurance companies are kind of like casinos: they rarely lose. And if you collect on a claim, they have a habit of dumping you, just like a casino will ban you from the premises if you start to win. This year we got dumped by our WC carrier because they suddenly “discovered” that we dig trenches deeper than 5 feet deep. This was most likely an excuse to reduce their Mass WC accounts, since our record for the year was actually quite good (we are covered by WC, but by another company).
We’ve learned over the years that having a safety committee, holding toolbox talks on specific safety issues with the on-site crew, conducting self-inspections of job sites, encouraging workers to take coffee breaks, and having company-wide safety training actually do reduce injuries, which is good for the employee, good for the company, and good for the owner. We provide all job supers with a safety manual based on OSHA regulations. When all is said and done, a safe job site literally pays in when it comes to insurance.
Thanks to Tom Messier of Mason and Mason Insurance, for about 25 years of keeping us protected, and for his help in fact-checking this article. He’s the best in the business.