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Ensure your Contractor is Insured

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Home improvement projects usually take off in the summer, when many homeowner’s gut the kitchen or add a bathroom. But what happens when a contractor’s negligence causes those plans to go up in smoke- literally?

Doug Clark’s 4,800 square foot home was hit by lightning in 2014, igniting a fire that destroyed the top floor of his home. During repairs, another storm came through and ripped off the roof, causing extensive flooding. Then, the contractor failed to properly secure the home, and the new AC Unit was stolen, along with jewelry, lawn equipment, and two generators.

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The result: a $400,000 insurance claim paid by Doug’s insurance company. Luckily, Doug was insured with a company that specializes in high-value luxury and waterfront homes.

We made a mistake- we hired a friend of a friend, who was a contractor. We didn’t give it a lot of thought. I had four children ad two puppies, and we needed to be back in our house as quickly as we could”, says Mr. Clark.

Often, a high-net-worth homeowner will file a claim with their homeowner’s insurance carrier, versus directly with the contractor who caused the damage. Their homeowner’s insurance policy will likely provide a better claims experience and afford better insurance coverage. For example, if a contractor has a $1 million policy but the renovation damage totaled $3 million, the homeowner would file a claim for the full amount with their own insurer. That insurer would like seem reimbursement from the contractor or its insurance company.

Also, high end homes are more likely to incorporate pricey materials or fixtures, not to mention valuable artwork or antiques, and a contractor’s liability policy may not cover these items.

Claims from renovations frequently include water damage from pipe breaks, broken windows, fire, and sometimes theft of building materials.

There are so many things that could go wrong,” says Dan DiClerico, a home expert at HomeAdvisor.

Contractors 3We recommend that you stay in touch with your insurance agent before and after a home improvement project to ensure you have sufficient coverage. After a major renovation, policy limits may need to be increased so that a homeowner has enough insurance to rebuild the home. Some projects, such as replacing a roof or installing impact-resistant windows, may qualify for an insurance discount as well.

For those about to embark upon a home improvement project or other renovations, here are a few things to consider:

  • Verify Everything. Fully vet your contractor. Make sure the firm holds a state license, is bonded, and has required insurance, including general liability and workers’ compensation. We also recommend verifying the insurance coverage of subcontractors.
  • Keep copious records. Retain copies of all paperwork involved with your project- proof of licensing, binding and insurance, contracts, invoices, proof of payment, progress photos and all project related correspondence.
  • Take inventory. Before starting a home improvement project, make a detailed list of all the items in your home. This includes furniture, appliances, personal possessions, and note the date you acquired them and the purchase price. Consider taking photos or making a video. If you do experience a property loss, your inventory will assist in the settlement of a covered loss of claim.

Source: Jumbo Jungle, Robyn A. Friedman