Managing a budget is generally a high priority on a homeowner’s list when beginning a home improvement project. Unfortunately, many homeowners make the mistake of saving money by hiring an unlicensed contractor. Although it may seem to be the more attractive, less expensive option, hiring an unlicensed contractor to save some money could be very problematic, leading to long-term negative financial effects or legal consequences. This is due to the fact that there is no guarantee that an unlicensed contractor will have the necessary insurance policies in place to protect your property, themselves, their workers, and any other damages that may arise from their construction work.
The two most common insurance policies for a contractor to hold are General Liability Insurance and Workman’s Compensation Insurance. Did you know that if you’re hiring an unlicensed contractor that does not hold these two policies, that you, as the homeowner, could be held responsible for the financial burdens resulting from an on-the job injury, property damage, and/or faulty work provided by the contractor? Below you will find the general information regarding General Liability Insurance and Workman’s Compensation Insurance, and the potential consequences for property owners when an unlicensed and uninsured contractor is hired.
What is General Liability insurance?
General Liability Insurance protects your property from damage incurred. Let’s say a contractor is working on a ceiling project and the ceiling accidentally caves, ruining your furniture, electronics and potentially hurting somebody. The contractor’s General Liability Insurance would reimburse you, the homeowner, for the damage done to your property as a result of the construction accident. Without General Liability Insurance, the cost of the damage to the property would fall directly on the homeowner. In theory, the homeowner could bring a suit against the contractor for reimbursement however, a lawsuit could cost the homeowner thousands of dollars in legal fees and there would be no guarantee that it would result in any type of reimbursement from the contractor.
What is Workman’s Compensation Insurance?
Workman’s Compensation Insurance is provided as a wage replacement and medical relief benefit for employees that are injured on the job. Worker’s Compensation Insurance should cover the contractor/business owner and all of the contractor’s employees. If a contracting company does not have workman’s compensation insurance and a contractor (or one of his/her employees) is injured on the job, the homeowner who hired them becomes responsible for the resulting monetary damages. Pursuant to New York Labor Laws, if a contractor is injured on a commercial or residential worksite, the sole property owner and/or landlord is responsible for the contractor’s injury, no matter whose fault the injury was. In the event that your unlicensed contractor – who does not have worker’s compensation insurance – gets seriously hurt and cannot work for three years, you, as the homeowner, could easily become a defendant in action for the contractor’s lost wages and medical bills.
It is important to be aware that as a homeowner, it is likely that your homeowner’s insurance policy may not provide a defense for such a claim. This makes it especially important that you, as a homeowner, do your due diligence and ensure that the contractor you are hiring is fully licensed and insured so as to best protect yourself from avoidable, burdensome, out-of-pocket expenses.
In addition to having protection against financial liabilities when hiring a licensed contractor, as the aggrieved homeowner, you may also have recourse against the contractor by filing a Complaint with the county’s Office of Consumer Affairs, who will investigate the dispute on your behalf. In Nassau County, the homeowner may even be entitled to compensation under the Nassau County’s Restitution Fund. Suffolk County also has a similar program.
Nassau County residents can file a Complaint with their respective Office of Consumer Affairs here and Suffolk County residents can file a Complaint against their contractors here. Both Nassau County and Suffolk County require that a general contractor be licensed and properly insured.
In short – always hire a licensed and insured contractor. The significant financial risks posed to a homeowner in the event of property damage, faulty work, and/or bodily injury, are far greater than any potential initial savings a homeowner may have when hiring an unlicensed and uninsured contractor. To verify a contractor’s licensing status, check with the Consumer Affairs Office in your state or county.
The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.
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 See Nassau County Local Law §6-1970, Home Improvement Business; and Suffolk County Regulatory Local Laws, §563-17