Whether it’s replacing a broken electrical circuit or remodeling a bathroom, homeowners need to be aware of the risks of hiring an uninsured contractor. It may cost less up front, but bringing this kind of tradesperson into your home could result in a substantial financial burden if a physical injury or property damage occurs.
Why it’s so important to hire a contractor with their own insurance
Less exposure to financial risks:
Let’s say a contractor working on your roof slips and falls, breaking their leg. Without liability insurance held by the contractor, you, the homeowner, may end up paying for their medical bills. What’s more, if the injured contractor worker doesn’t have compensation coverage, then you could be stuck with the medical bill and paying for lost wages as well.
Protection for your property:
Imagine that during the remodelling of your bathroom, your contractor unknowingly damages a water pipe, causing a flood a few weeks later. If your contractor is uninsured, they may not be legally obligated to compensate you for any damages not covered by your homeowner’s insurance policy.
Incomplete projects:
What if the contractor remodelling your kitchen decides to stop showing up halfway through? Suddenly, you’re stuck with the cost and aggravation of finding someone to complete the project. To ensure that your contractor will see the project through to completion, you need to agree on a construction bond. Although not an insurance type per se, a construction bond is a three-party agreement contract that protects homeowners from any interruptions during the course of completion.
What about contractor insurance?
Even if you have home insurance, there could be certain limitations within your homeowner’s policy that mean damages done to your property by an uninsured contractor won’t be covered. When hiring a contractor, ask if they carry a commercial general liability policy, which covers the contractor in the event of any property damage or physical injuries to you or your home.
In addition, the contractor should be enrolled within their provincially operated Workers’ Compensation program. This is a government insurance program that provides compensation to eligible workers who face injury or illness in the workplace.
Before hiring a contractor, always check with your current home insurance provider to outline all of the specific details of your renovation project along with the proof of insurance held by your contractor to ensure that everything is covered.
Understanding holdbacks
For homeowners, it’s also important to understand the specifics of construction holdback rules.
A holdback clause legally requires owners (residential and commercial), contractors and subcontractors to withhold 10 per cent of the total cost of a project or of the cost of material and supplies needed for the completion of a project. The holdback ensures payment protection for all parties involved in a construction contract by withholding enough money to satisfy any future lien claims.
The Ontario Construction Act specifies two types of holdback:
- The basic holdback: 10 per cent of the total project cost.
- The finishing holdback: 10 per cent of the remaining cost of materials or supplies needed to complete the project. This covers instances where a contractor might not be able to finish the project completely, for example due to the weather or lack of supplies.
It’s important to note that the holdback does not guarantee a perfect job. Instead, it’s best to come up with a payment schedule with the contractor that focuses on benchmarking their progress and to release payments only after the project has reached a certain stage.
Contractor hiring tips
When looking for a contractor to hire for your home renovation project, take into consideration the following factors:
- How many years’ experience do they have working on similar projects?
- Do they have good recommendations and customer reviews from past clients?
- What’s their level of experience with regard to working techniques and material selection?
- How effective are their technical, interpersonal and business skills when it comes to project delivery?
It is crucial that you hire a contractor who has both liability and Workers’ Compensation insurance, which will cover everyone working on the project and any future damages that might occur. It is always important to be safe by requesting to see a certificate of insurance and confirming it’s updated. Never assume or accept the liability of a general contractor without proper documentation.
Originally published May 11, 2020
