Am I financially liable for construction accidents if I don't hire a licensed and insured contractor?
New York State has specific laws pertaining to residential and commercial contractors.
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You may be surprised what liabilty you take on when you hire an unlicensed and uninsured renovation contractor. If the contractor is not insured, you could assume the financial and legal responsibilites of the general contractor for your project.
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In New York, hiring an unlicensed, uninsured contractor is extremely risky: you become personally liable for any injuries they or their workers sustain (medical bills, lost wages), your homeowner's insurance likely won't cover it, you can't sue them effectively if they do a bad job, and they might even file a lien against your property for non-payment, forcing you to pay them despite their lack of license. You lose legal protection, risk significant out-of-pocket costs, and face potential lawsuits, making it crucial to verify licenses and insurance before hiring.
In New York, homeowners who hire an unlicensed and uninsured contractor can find themselves financially responsible for property damages including damage to a neighbor’s property and public spaces, worker injuries and faulty work. You could be sued, and your homeowner's insurance may not cover the costs, potentially leading to a loss of assets. Furthermore, if an employee is injured, they could be considered your employee and may be able to collect workers' compensation from you or sue for negligence.
A homeowner may hire the cheapest contractor wanting to save money. However, the cheapest contractor can end up being the most expensive contractor. This can become a financial nightmare! Read on for more info.
Being licensed and insured is expensive, costing tens or hundreds of thousand of dollars per year. No wonder uninsured contractors come cheap. They put all the risk on you!
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What are some of the Risks of Hiring Unlicensed Contractors?
Your first question should be, why is the contractor unlicensed. Are they reliable? Competent? Experienced? Do they know building codes? They obviously cannot apply for a building permit. Will they finish the job?
If they do not finish your job or do shoddy work, you have no recourse. If you paid them and they don't show up, you have no recourse. No government agency will be able to assist you.
If they compromise the structural integrity of your home, you can pay dearly to have it fixed to code. You can try to sue them. It could be expensive to hire lawyers. Do you know if they are a registered business and do you know their address? In order to sue them, you must know these things.
If you get cited for violations, you are on your own. Licensed contractors are subject to regulatory oversight, unlike unlicensed contractors.
An unlicensed contractor will not have workman’s comp insurance which opens you up to liabilty for injuries to the contractor and his workers. They may have general liability but if you are going this route, you need to verify it is active.
What Insurance Policies must your Contractor have?
Licensed general contractors must have the following coverage:
General liability insurance with a “Products and completed operations coverage” clause -This insurance covers property damage to your home, neighbors' homes and public spaces. It also covers injuries to third parties which includes the homeowner, neighbors and anyone else injured by the contractors work. More about this later.
Workers’ compensation insurance - This insurance protects homeowners from financial liabilty in case of accidents and injuries to your contractor and their workers Without this coverage, homeowners may be responsible for medical bills and more. See below for more details.
Commercial Vehicle Insurance - Coverage for accidents, theft and vandalism. If they are carrying materials for your project, it is additinal protection.
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Lack of Workman's Comp Insurance - Homeowner Liabilty
Workers’ Compensation Insurance covers job-related injuries and illnesses sustained by the contractor and their employees, including lost wages, medical expenses, permanent disability benefits, and death benefits. This insurance also covers legal expenses if a lawsuit is filed. If a worker is injured on your property and the contractor lacks workers’ compensation insurance, you could be liable for medical costs and lost wages. In essence, the homeowner takes on the role of general contractor, including all the financial and liability burdens. No homeowner wants to take this risk knowingly.
What does General Liability Insurance Cover?
General Liability Insurance covers all damages to your property as well as your neighbor’s. One example is if your contractor is taking down a wall, it collapses and damages your wood floor and furniture. General liability will cover the cost to repair and replace the damaged items. Make sure they have a clause for “Products and completed operations coverage". This will cover accidents and damage after the work is completed. For example, your contractor builds an overhang above your deck that collapses 6 month later. The collapse injures you and your guests. Products and completed operations coverage will pay for medical bills, repairs, property damage and any lawsuits against you stemming from this accident.
State license boards mandate insurance policies for licensed professionals to protect homeowners. Yet, unlicensed contractors frequently disregard these requirements, exposing property owners to significant risk.
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Verify License & Insurances
Verify Contractor’s License is Current - Once they provide the license #, contact your county to validate that they are current.
Verify their insurance is current. - Once you receive a copy of the general liability, workman's comp and other insurance policies, call the insurance companies directly to validate they are current. Also confirm the coverage is adequate for your project.
Financial Risk of Hiring Uninsured Contractors
Most homeowners don’t know the financial risk they take if a contractor does not have general liability and workman’s compensation. Being licensed and insured is expensive, costing tens or hundreds of thousands of dollars. No wonder uninsured contractors come cheap. They put all the risk on you! Let's review responsibilities of homeowners who choose unlicensed, uninsured and/or under insured contractors.
Damage to your property including structural damage, furniture, floors, landscaping, etc...
Damage to neighboring properties
Damage to public spaces such as breaks to a sewer line or cutting electrical power
Injuries to any individual on your propery, your neighbor's property or public space.
Car accidents with their work vehicle
Poor workmanship
Injuries due to poor construction
Injuries to workers including medical, wages, disability, death benefits
That is some list! Is it worth all the risk? This can be a greater financial burden than if you have an accident and don't have car insurance. Express Contracting is a licensed and insured general contractor. We hire our own carpenters.