Questions You Need to Ask Your Contractor About Their Insurance

Have you been searching for the best contractor for your project? Then, creating a list of questions for your prospects is the first step to success! Asking them about their contractor insurance coverage should definitely be one of your priorities.

For some project owners, consultants, homeowners, and homeowners to-be, asking about the contractor’s insurance is just a matter of:

• Do you have insurance? Is it updated?; and
• Are you bonded?

Though these are excellent starting questions, there’s more to uncover. As you’ll see in this guide, a more thorough look at contractor insurance coverage is always advisable. 

The biggest risk of hiring a contractor without adequate insurance is that unforeseen delays, injuries, and damages will not be quickly remedied. The worst-case scenario is that you may get the full brunt of these damages with little to no compensation. 

Read on to discover the questions you need to ask your prospects about contractor insurance coverage. 

1. Do You Have Insurance? Are You Bonded? 

As we’ve mentioned above, these are great questions to start with. Assuming that the contractor says yes to both of these, you’re off to a great start. 

But are both contractor insurance and a contractor surety bond required all the time? What’s the difference? Let’s discuss these further. 

Contractor Insurance Is Always Required

No matter what type of contractor (or even subcontractor) you’re getting for your project, they need to be insured. This applies to general contractors, renovation contractors, plumbing contractors, and so on. 

The minimum requirement for contractor insurance coverage is (1) commercial general liability insurance, and (2) workers’ compensation insurance/personal coverage—which we will discuss in detail in a later section. For now, keep these insurance types in mind. They are required.

Contractor Surety Bond Is Usually Required

A surety bond is a legal document that represents a guarantee between two parties. One party is the principal, and the other is the obligee. The principal makes a legally binding promise to the obligee. If this promise is not met, the bond will cover the losses of the obligee. 

Between contractors and project owners (and/or their consultant), the principal is the contractor while the owner of the project is the obligee—that is, if a surety bond is purchased by the contractor. 

There are two types of surety bonds relevant in this situation: 

• Performance Bond - backs the guarantee that a project will be completed within the terms of the contract. 
• License and Permit Bond - backs the guarantee of compliance with regulations. 

This table explains when the above surety bonds are required. 

Note: To further clarify the contents of the right-most column above, even if a surety bond is not automatically required, you, as the project owner, can require or request your contractor to be bonded before they take on the job.

2. When Was the Last Time Your Insurance Was Updated?

This question can give you an idea of how well the contractor manages their commercial insurance. And this is important to check because some providers will reject insurance claims if the policy is not updated.  

Essentially, commercial insurance isn’t just set up once and then left alone. Contracting businesses need to update their insurance when the following happens:

• Addition or replacement of employees;
• Change/renovation to their commercial space;
• Addition or replacement of commercial vehicles;
• Acquirement of new equipment; and
• New service offerings. 

With all these triggers for insurance updates, it’s rare for businesses to leave their insurance as is for a long amount of time. A period of two years or more of not updating their insurance could be a potential red flag.  

3. What is the Extent of Your Contractor Insurance Coverage? 

Not all contracting businesses are insured to the same extent. Some may have insurance policies that are the bare minimum requirement. Meanwhile, others may have insurance bundles that go above and beyond. As a potential client of a contractor, you have the right to know what the scope of their contractor insurance coverage is. 

A. Required Contractor Insurance Coverage

The term “contractor insurance coverage,” is sometimes interchangeably used with either commercial general liability insurance and workers’ compensation insurance. This is because these two insurance types are absolute necessities. 

Commercial general liability (CGL) insurance is a policy that protects third-party individuals. The project owners, suppliers, and the general public fall within this scope. CGL gives coverage for the following: 

• Third-party bodily injury and property damage caused by operations;
• Third-party bodily injury and property damage caused by failed workmanship;
• Third-party bodily injury within business premises; and
• Reputational/advertising injuries. 

Meanwhile, workers’ compensation insurance or personal coverage protects the construction workers or tradespeople themselves in case of death, disability, illness, and injury. 

So why should it matter for project owners whether or not contractors have these types of insurance? These are the two main reasons:

• Liability (esp. for injuries) can be passed to the project owner depending on the circumstances. This is more likely to happen if the contracting business doesn’t have insurance to back them up. 
• Even if liability falls on the contracting business for injuries or property damage, only an updated CGL and workers’ compensation insurance will guarantee that sufficient and timely payouts or settlements will be made. 

B. Contractor Insurance Policies That Can Help Avoid Delays

Earlier, we covered must-have insurance policies for contractors. The ones we’ll cover next are also very useful to have. Commercial insurance such as the following can help avoid delays:

• Commercial property insurance
• Commercial auto insurance/fleet insurance
• Construction equipment insurance
• Tools and floaters insurance

In case of unforeseen events involving the contractors’ commercial space, vehicles, equipment, materials, and so on, the contracting business will be more likely to recover faster if they’re adequately insured by the insurance policies listed above. Therefore, such unforeseen events are less likely to impact your project’s timeline. 

C. Contractor Insurance That Will Directly Protect Your Project

We’ve talked about contractor insurance for just about everything (e.g. injuries, property damage, commercial property, commercial vehicles, and so on.) But did you know that your project (the structure under construction or under renovation) can be insured too? 

If you’d like to have this type of coverage, the type of insurance to look for is Builder’s Risk Insurance, which covers damage to the building itself. 

This type of insurance also covers the damage/theft/vandalism inflicted on building materials, equipment, and temporary structures for construction. Moreover, this type of insurance shoulders soft costs that are brought about by delays. 

Although builder’s risk insurance isn’t required in a strict sense, we highly recommend that you request this from your contractor, whether you are constructing a house, a large building, and so on. 

4. Can I Get Documentation of Your Insurance? 

While discussing contractor insurance coverage with your chosen contractor, we strongly recommend getting documentation of their insurance. Typically, they should be willing to show or send a copy of their insurance certificate. 

If liability cases arise, this is proof that you, as the project owner, did your due diligence. As an added precaution, call the insurance company to make sure that the insurance policy is existent, updated, and active. 

Talk to A Trusted Provider and Consultant for Contractor Insurance Coverage & Surety Bonds 

KASE Insurance is an award-winning commercial insurance brokerage firm that’s based in Ontario. If you have further questions about contractor insurance coverage or surety bonds, we’ll be glad to answer your concerns. 

There is always someone on our team who’s ready to help—feel free to contact us.