Commercial Insurance Blog

After an insurance claim that you filed due to physical damage to your home or building, you’ll probably need to hire a contractor to repair or rebuild.  

When hiring a contractor you want to be sure they’re insured in case they injure someone or cause property damage while working.  At the very minimum, the contractor should provide you with a Certificate of Insurance showing they have General Liability and Auto Liability along with Workers Compensation coverage.  The Certificate of Insurance should have a current date in the top right of the form and your name in the Certificate Holder area in the bottom left of the form.

But what protects you from the contractor who takes your money but never starts, or starts the job but doesn’t finish?

Contractor Bonds are a financial guarantee that a contractor will perform as agreed to in a construction contract.  For example, you pay a contractor a $25,000 deposit on a $100,000 job; the contractor takes your money but doesn’t do the work.  If the contractor had provided a Bond naming you as the Obligee (protected person) you’d file a claim with the Bond company.  They in turn would pay you the $25,000 you’re owed by the contractor.

Bonds and insurance are completely different:

• Insurance pays on behalf of and protects the contractor from having to pay if they accidentally cause injury or property damage to others. The insurance company doesn’t expect the contractor to reimburse them for the claim paid other than any applicable deductible.

• Bonds pay instead of the contractor.  The Bond Company pays you, but they do expect the contractor to reimburse them for the bond claim they paid out on.

Because bonds cover events that are NOT accidental or events outside the control of the contractor, applying for a bond is more like applying for a loan than applying for insurance.  Bond companies want to know if they pay a claim that the contractor has the ability to pay them back.  Even if the contractor asks you to cover the cost of the bond, consider it money well spent to guarantee you won’t lose lose out on a contractor who won’t or can’t complete the work.

For more information on hiring a contractor and the Massachusetts Contractor Guarantee Fund click below:

http://www.mass.gov/ocabr/consumer-rights-and-resources/home-improvement-contract

http://www.mass.gov/ocabr/consumer-rights-and-resources/home-improvement-contract/guaranty-fund/guaranty-fund.html

To discuss your particular needs call the insurance professionals at Gordon Atlantic toll free at (800) 649-3252.  Prefer to type instead of talk?  Click below for an answer to a question or a quote!