Risks of Working with an Uninsured or Unlicensed Contractor
It seems like it should be easy: You call a contractor, hire him to complete the work, and then he gets paid. You don’t want, nor consider asking about licenses and insurance, but…
You're on the hook!
An unlicensed or uninsured contractor can end up costing more than you ever expect. When a contractor receives his license, he has to prove that he has insurance. A contractor’s insurance policy covers damage to your property, to the people in your house, and to the workers on the job. If there is no insurance policy, guess who gets to pay for medical expenses if someone gets hurt? That’s right: you! And, unfortunately, your homeowner’s policy will most likely not cover those expenses. Most homeowner’s policies have a clause that exempts them from paying if you knowingly hired a contractor that is not insured.
Bear in mind, this doesn’t apply solely to homeowners; a business may be on the hook for medical and repair expenses if an unlicensed/uninsured contractor works for them.
The Costs of an Uninsured Contractor
An uninsured contractor, much like an uninsured motorist, can be very expensive. Here are some unforeseeable expenses you may encounter:
- Repair costs on your home if your home is damaged by the contractor
- Medical costs if a worker is hurt on the job
- Legal expenses trying to get your home put back together
- Costs of repairing power, water, sewer, phone, or cable lines if the contractor damages one
Issues like these can spiral out of control very quickly. In fact, some of these expenses can push you to bankruptcy in months. For example, a broken water main can cost hundreds of thousands of dollars to repair. If your contractor is not licensed or insured, you or your business will be forced to pay the bill.
No Court for You
One of the most difficult aspects of a contractor not having a license is that it often means you are much less likely to win in court. If you knew that the person you hired was not qualified, the case shifts into one where you must prove why you are not liable.
Avoiding “Bad” Contractors
The simplest way to avoid these problems is to ask for proof of insurance and a copy of the contractor’s license. The proof of insurance can be a current binder page which he can print out for you. They might also give you his insurance agent’s phone number and policy number so you can confirm it. A contractor’s license, like any other license, is a document issued by your state. Just ask for a photocopy of it.
If your contractor hesitates, you need to ‘hesitate’ to hire or pay him. The risks are enormous, including loss of your home or your business. Even if you are able to successfully win in court, it will still cost you a significant investment in time and attorney fees that you might never recover.
Keep your assets, whether personal or business, safe by asking for the appropriate proof of license and insurance. It might seem like you are being harsh, but harsh is losing everything you own to someone you paid to work for you.
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