FAQs

Below are the questions that our clients ask most often. Please feel free to add your comments or contact us to clarify and issues you may have. Thank you!

General Liability and Surety Bonds

General liability insurance is an agreement between a contractor an an insurance carrier to reimburse a third party (such as a consumer) for property damage or personal injury loss caused by the contractor. An example of this type of loss might be a contractor’s ladder falling and breaking a window. General liability insurance does not provide reimbursement to a third party (such as a consumer) for poor work or construction defects; however, it may provide coverage for damages caused by faulty work or construction defects. General liability insurance may contain exclusions for specific risks or exposures that are not covered.

 

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A surety bond is a contract under which one party (the surety) guarantees the performance of certain obligations by a second party (the principal)to a third party (the obligee.) For example, most construction contractors must provide the party for whom they are performing operations with a bond guaranteeing that they will complete the project in accordance with all of the plans and specifications by the date specified in the construction contract.

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No. A surety bond is only needed when your company is involved in a business activity that requires a guarantor. The premium charged for a surety bond primarily covers the surety company’s services in issuing the bond. The surety company does not expect to pay losses at the time the bond is issued; it expects your company to perform the obligations guaranteed by the bond. Conversely, an insurance company expects to pay for your company’s covered losses. Thus, the premiums it charges for your insurance coverage are determined by the risks associated with your company’s industry and the losses the insurer expects to pay.

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Employees have no coverage under a general liability policy with respect to the named insured, its partners or members or to another employee or volunteer.

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Construction contracts frequently require contractors to add other parties to their liability insurance as “additional insureds.” This acts as a second layer of protection for the contractual indemnity agreement. Additional insureds can submit claims directly to the insurance company without first filing a claim against the named insured.

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Workers Compensation

Workers compensation insurance provides coverage for employees who are injured on the job. When an employee is injured, workers compensation insurance provides him with medical treatment, payment for lost wages and re-employment assistance, if needed.

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Builder's Risk Insurance

Builder’s risk is a form of property insurance specifically designed to cover buildings that are under construction. The rates for builder’s risk insurance are discounted because there is very little property at risk when construction begins. Builder’s risk insurance is not a standardized form of coverage; coverage varies from insurance company to insurance company. The Construction Guard has one of the broadest policies available on the market today.

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Yes. While some companies exclude theft coverage until the building is “dried in” and can be locked, The Construction Guard can secure theft coverage up to the full amount of coverage purchased for the entire structure

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As a general rule, builder’s risk policies cover the building and building materials that will become a permanent part of the completed structure. Contractor’s tools and equipment should be covered under a separate tools and equipment “floater” policy.

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Yes. There is no deduction made for depreciation on new construction. The insurance pays the cost to repair or replace the damaged property with materials of like kind and quality.

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Builder’s risk insurance is usually less expensive than a homeowner’s policy because it is designed to cover an unoccupied dwelling that is under construction. It is a temporary policy with discounted rates. A homeowner’s policy is a more permanent policy designed to cover an existing home, its contents and the owner’s personal liability exposures. In addition to being more expensive, a homeowner’s policy does not include some of the special construction-related coverage extensions found in a builder’s risk policy.

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It depends. Most builder’s risk insurance policies are written on an annual basis and can be renewed if construction takes longer than 12 months. The Construction Guard can secure coverage that will cover most structures for up to 24 months, and larger buildings can be insured for as long as the estimated construction period.

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Sometimes, but it is not a good idea. Builder’s risk insurance is offered at discounted rates because there is very little property at risk when construction begins. If you wait until the structure is being framed and “dried in” to purchase insurance, the discounted rates will be inadequate to cover the value of the property at the time you apply. If your project is more than 30 percent complete at the time you request coverage, your application will require special underwriting, resulting in increased rates or denial of coverage. If the structure is more than 50 percent complete, you may not be able to purchase builder’s risk coverage at all.

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No. There is no extra charge for adding additional insureds and mortgages. The Construction Guard’s automated system issues as many Certificates of Coverage as needed to document the coverage for each insured.

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A hold harmless agreement is a contract in which one party (the indemnitor) promises to reimburse and in some cases defend another party (the indemnitee) against claims or suits brought against the indemnitee by a third party. The purpose of a hold harmless agreement is to transfer the risk of financial loss from one party (the indemnitee) to another party (the indemnitor.)

 

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Information for Consumers

Consumers should only hire contractors who are licensed, bonded and insured. Make sure that the contractor’s license is active and that his insurance and bond are up-to-date. Find out  if the contractor’s license allows him to have employees. A license that allows employees (non-exempt) means that the contractor must have worker’s compensation insurance. This prevents a worker’s compensation claim against the owner of the property by an employee who is injured on the job. If the contractor is exempt (has no employees) find out if he has worker’s compensation insurance for himself/herself.

Additionally, find out if there are any exclusions on the contractor’s general liability insurance and whether he or she guarantees his work. All guarantees should be spelled out in detail in the written contract. Any changes to the initial contract should be made in writing and signed by the consumer and the contractor at the time the change is made.

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