Statistically, the construction and renovation industry has one of the highest rates of personal injury and property damage.
It can also be extremely litigious, and that’s why it’s vital that the contractor you hire for the work is properly insured.
The data in the following chart shows this.
Here, I’ll outline what you should do to ensure that the contractor you hire has the proper coverage, and how to best go about obtaining this information ahead of time.
The purpose of this article is not to scare the living wits out of everyone, but it's rather here to shed light on an often ignored matter. And really it protects both sides of the equation - the contractor and the homeowner or investor.
I get especially paranoid with the personal injury lawyer billboards and ads I see everywhere.
Let’s start by listing the 2 primary types of insurance the contractors need.
In addition to the information in this article, you should always seek the advice of a certified insurance professional. I am NOT an insurance professional, nor do I play one on the internet, so please do your homework.
1. General Liability Insurance (also known as Comprehensive General Liability or Commercial General Liability or CGL)
This essentially covers a contractor’s work that may lead to property damage or injury to a third party - someone other than the contractor or their employees. If the contractor has a storefront, it may also cover anyone that might be hurt on the premises.
It is protection for claims from “bodily injury and property damage to third parties arising from your premises, operations, products and completed operations” (1).
Some coverage goes up to $1 million, $2 million and even $5 million. Depending on the scope of your project, you might want to request to see a higher amount. For example, a second storey addition is substantially more risky than a bathroom renovation.
Make sure the coverage is specific to the activities of your contractor. Depending on the type of work that a contractor performs, the risks associated are different.
2. Worker’s Compensation Insurance – This protects the contractor and/or employees in case of injury
Injuries to contractors and their employees are a real risk. The proper coverage for these occurrences really depends on the circumstances. Now let’s look at where the coverage may come from.
Homeowner Insurance Policy – Your homeowners insurance policy may cover third party injuries (such as visitors), and many extend to contractors that perform work at your house. (2) Check your homeowner’s policy or call your insurance agent. There’s a caveat to this however. If your property is a business, it definitely won’t cover it. And yes – an investment property is considered a business. This segue’s us into WSIB.
WSIB (Worker’s Safety And Insurance Board) – In Ontario, any contractor that performs commercial work (investment homes included) need to have a WSIB clearance for themselves and employees. This is expensive, and unfortunately the contractor has to pass those costs to the client in order to remain in business. (3)
This is why you’ll notice that good contractors with systems in place, who are well organized tend to charge more money. It simply costs them more to operate properly. Unqualified contractors are able to undercut them substantially by saving money on things like insurance, licensing and association fees, etc.
Depending on the complexity of the contractor and the type of work they perform, there may be umbrella type policies that cover more items.
In Ontario however, WSIB is required regardless of the coverage from private insurers if you’re hiring someone for performing work in a property for business operations.
If your General Contractor or Project Manager is hiring outside help instead of using their own staff, those people are separate contractors. Your contractor should ensure that they have the proper coverage as well. Having said this, YOU should still be the one to verify this with them.
These are typical for licensed trades such as electrical, plumbing, mechanical, and other specialized professionals. And no, your general contractor nor their labourers should not be doing this type of work.
I won’t get into the licensing requirements in this article, as that is a whole other topic. Various public and private associations regulate many of the trades and contractors who operate in Ontario, mostly the specialized ones we mentioned above. Some cities however require even general contractors or trades to have a registration within the city.
Many of these contractors say it’s a cash grab, while the city says that it’s consumer protection. I’ll stay out of that debate.
Licensing and qualification requirements will be discussed in a future article.
Get Information Before Signing Contract
Before agreeing to do any work and signing a contract for renovation work, get a copy of their policy and go through it in detail to ensure that you have proper coverage for your particular scope of work.
It’s Your Responsibility
This is just a brief introduction to construction insurance as a starting point for you. Don’t make any decisions based on this information. Have a good insurance broker to let you know what things are needed for your renovation or construction project.
Remember that ultimately you are always accountable. Make sure you do your due diligence of what’s required, and don’t be reliant on another party for that information.
Many homeowners and investor’s falsely assume that their contractor will have all the necessary coverage – similar to how they assume their contractor will obtain necessary permits. Some do, and many don’t – so do your part!
The last thing you want is to be left holding the bag in case……umm….stuff happens.