Homeowners often assume their contractor has covered their risks of loss arising from the proposed renovation or remodeling project.
Renovation and remodeling projects can be a large expenditure for a homeowner. Relying on the contractor to manage the risks of construction and procure insurance to protect the homeowner should not be based on assumptions.
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Direct damage coverage to the renovations should include the interest of the owner.
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Indirect costs of delay for the owner are often overlooked, yet these costs can be covered by a builder’s risk coverage option.
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Damage to the existing structure is usually the responsibility of the owner.
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Change orders may increase the cost of construction resulting in a penalty being applied to an insured loss.
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Liability from construction risk could exceed the contractor’s liability limits or be excluded.
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Subcontractors and sub subcontractors are often “independent contractors” that may not have workers’ compensation or general liability coverage with adequate limits.
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Often, little, or no “risk transfer” happens between the homeowners and the contractor. This means that the contractor’s obligation to indemnify and protect the homeowner from injury, damage, or delay arising out of the remodeling project are not written obligations in a contract, but a difficult to enforce oral agreement.
Impact Quantify Current and Potential Cost
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Direct loss to the project and existing home by fire, wind, collapse, or other hazards. Impact: Critical Risk $25,000 to Millions
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Soft costs become the homeowner’s responsibility, such as refinancing costs, additional permits, and fees. Impact: Important Risk $10,000 to $250,000
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Liability to third parties. Impact: Critical Risk $50,000 to Millions
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Contractor default from losses from this or other projects. Impact: Important Risk $Loss of project value plus delay.
Solutions
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Implement insurance requirements for remodeling or renovations.
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Require evidence of property insurance for your interest in the renovation.
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Require a certificate of liability and worker’s compensation insurance.
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Check the background – see public records such as those of the local County court.
Questions to identify exposures:
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· Will you occupy your home during renovations? ____
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· Will your renovation include structural changes, like modifying a loadbearing wall, changes to the foundation, or adding an additional story? __________________
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· If so, are there stamped engineering plans for structural changes?
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· How long has your contractor been in business?
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· Do you have a written contract? If so, does it hold you harmless for liability to others, waive subrogation or have requirements to name you as additional insured in the contractor’s insurance?
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· What is your cost for the renovation? ______________
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· Will you have custom features that are unique or have a long lead time?
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· How long is the estimated time to complete the project?
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· Will materials for the renovation be stored on site or at a storage location?
