When it comes to insurance, remodelers have fewer options than ever before. Insurance companies that haven't withdrawn from the market have hiked their premiums across the board.
This has prompted many remodelers to pare their coverage to the skimpiest minimums needed to get them on a jobsite. But cutting corners on insurance can be a costly mistake. “Underinsured remodelers are one major incident away from being on the streets,” warns Mark Kinsey, a partner at PKG Insurance in Doylestown, Pa. He notes that high-end remodelers are especially vulnerable when they don't carry a builder's risk policy and don't have enough general liability insurance to protect themselves in the event of a lawsuit.
Even remodelers who buy all the insurance available in all the right amounts (see “Insurance at a Glance,” below) may not be completely lawsuit-proof, because they lack errors and omissions insurance.
“Most contractors can't get professional liability insurance — it simply doesn't exist for contractors,” says Frederick J. Fisher, CEO of E.L.M. Insurance Brokers, an insurance wholesaler in El Segundo, Calif. He notes that unless remodelers have a licensed architect or a licensed engineer on staff, they can't buy coverage. This leaves remodelers vulnerable to design-error–related lawsuits.
Fisher says that commercial professional liability is more readily available than residential. “The issue is that defects in residential cases — people's homes — get real personal, real fast,” he says. “There is a huge difference in the number of claims in residential versus commercial building.” Rex Lesueur of Bancorp Insurance in La Pine, Ore., has simple advice for remodelers: “If you're building anything bigger than a lean-to, don't do it without an engineer's stamp.” Getting an architect or engineer to stamp plans is the only way to pass the buck on the professional liability front, insurance experts agree.
Even if an insurance firm were to bend the rules and grant a professional liability product to a remodeler, the cost would be too high. Fisher estimates insurers would charge $10,000 to $15,000 annually, at a minimum, for it.
Cati O'Keefe is a freelance writer based in Cincinnati.
| Type of Insurance | What Does It Cover? | How Much Coverage is Enough? |
| Builder's risk / course of construction Who should buy it: Remodelers, homeowners |
Remodeler: coverage for property while under construction, including materials in transit and stored at the jobsite and the value of the property being constructed until it is done. Homeowner: coverage for any items the homeowner paid for outside the contract, such as the washer and dryer, uninstalled tile, carpet, specialty fix- tures, and the like. Contracts between the parties should clearly spell out who is responsible for what materials, and insurance policies. |
Remodeler: Policy should match the contract price of the job plus 10% for cleanup. Homeowner: Policy should match the replacement value for all the items for which the homeowner is responsible. |
| General liability Who should buy it: Remodelers |
Protects the policy owner from acts of negligence and/or omissions resulting in bodily injury and/or property damage on the jobsite. | $1 million; more if you routinely work on structures valued at more than that. |
| Umbrella liability Who should buy it: Remodelers, homeowners |
Remodeler: provides liability coverage over and above the general liability policy when remodeling expensive properties. Homeowner: provides liability coverage over and above regular homeowners' insurance and is especially important if the homeowner has significant assets to protect. |
Talk to your agent: Amounts vary depending on assets requiring protection and scale of the job. You may have to raise coverages of other insurance to qualify for the umbrella. |
| Errors and omissions / professional liability Who should buy it: Remodelers with a licensed architect or a licensed engineer on staff |
Covers economic loss from an act, error, or omission related to the design work. | $1 million |
| Workers' compensation Who should buy it: Remodelers and all subs and vendors |
In all states but Texas, you must have workers' compensation coverage for your employees. To protect yourself and avoid lawsuits, make subcontractors show you a certificate of insurance for general liability and workers' comp before they step on your jobsite. (See www.weinsureoregon.com for a booklet on understanding certificates of insurance, good nationwide.) | Prescribed by law. In some states you can buy extra liability coverage. |
| Inland marine Who should buy it: Remodelers |
All equipment (forklifts, earthmovers, and so on). | Insure each piece of equipment for its replacement value. |
