As the weather improves, many homeowners start planning major remodeling or renovation projects. According to Statistic Brain, in the next two years 26% of homeowners plan a bathroom renovation or addition and 22% plan a kitchen renovation or addition.
I’ve been through five major remodeling projects, including rebuilding after Hurricane Sandy, and I’m planning a full kitchen remodel next year. I’ve learned a lot about the insurance coverage issues for the homeowner, the contractor and the subcontractors, and I’m sharing what I’ve learned.
Some people (like me) hire a general contractor to manage the renovation process while others prefer to manage the project themselves. Some homeowners are willing to be do-it-yourselfers and actually do some tasks while hiring licensed subcontractors for plumbing and electrical work.
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.
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No. 9: Review your homeowners insurance.
Contact your home insurance carrier or broker to confirm whether your policy covers your home and property while it’s being remodeled. For example, if you have to move your furniture out of the rooms that are undergoing renovations, consider getting a storage container to put in your driveway. I rented a 40-foot unit when I added a second floor to my single-story ranch and filled it with furniture and everything from my attic.
Your homeowners policy should cover the contents in the container, but confirm the coverage with your broker. If you don’t have room for a container on site and you put your belongings in an offsite storage unit, you may need a separate policy.
If you’re planning to do the work yourself, your first call should be to your broker. Some remodeling projects if not undertaken correctly may void your homeowners policy.
No. 8: 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.
“This is the biggest mistake homeowners make,” says Alex Totino, president of ABC General Contractors, Stamford, Conn. “Only one out of 20 homeowners has ever asked to see my insurance certificate. Most are focused only on the price of the job.”
No. 7: 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.
Generally, the GC’s liability policy excludes coverage for tools and equipment. The GC and the subcontractors should speak with their brokers about the best way to cover equipment and tools, which can easily be damaged, lost or stolen. In one case the GC’s employee left an expensive, new hammer in the wall between the studs and covered it up with dry wall. No one knew what happened to the hammer until three years later when the GC worked on a project for the same homeowner and found the hammer. (Yes, it happened on one of my remodeling projects.)
No. 6: 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 broker 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. Be prepared: Determining the proper coverage and policy may require several conversations with brokers and carriers as well as lenders.
No. 5: Insure commercial vehicles and equipment.
Most GCs and subcontractors drive commercial vehicles that are designed to carry their equipment, materials and tools. They also may have dump trucks or other vehicles they use to bring supplies to the site and haul away debris. These vehicles require special insurance coverage, primarily for tools and equipment stored in the trucks, and state law may require that only someone with a commercial driver’s license can operate them.
The insurance policy should cover vehicles when they’re stored at a construction site as well as on the contractor’s premises. My contractor left his truck with tools and paint in my driveway for several days because it was more efficient to have his workers come directly to the job site. The truck was always locked and my property is fairly secure, but theft and vandalism are known risks. The contractor’s commercial vehicle insurance policy covered this situation.
No. 4: 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.
Totino says that even when homeowners ask about his insurance, they fail to ask about insurance for the subcontractors. Totino makes it a practice to include current insurance certificates from his subcontractors along with his own to show the homeowner. If for some reason the subcontractor doesn’t have its own insurance, Totino arranges to provide the necessary coverage.
Even though the GC may have worked with the subs for a long time on many jobs, accidents can happen. The GC’s contract with the sub should include a “hold harmless” clause that protects the GC from having to pay for damage caused by the sub’s mistake or carelessness. The contract also should include an indemnification clause, in which the subcontractor acknowledges that it will be responsible for any damage it causes.
No. 3: 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.
No. 2: 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.
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No. 1: Consult your broker.
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 brokers before starting the project. The GC can also consult the local remodeling association to get the best advice on what insurance he needs and is available for his business.
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.
As for surviving the project itself? Maintain your sense of humor and expect things to go wrong. But as long as you have faith in your contractor—and adequate insurance coverage—it will turn out fine.
Do you have your own stories of remodeling insurance claims or coverage issues? Please share your advice and anecdotes with us in the comments section.