CONSTRUCTION RISK INSURANCE
The standard advice given to homeowners looking for a contractor is to make sure that the contractor hired is “licensed and insured.” The following explains the 4 different insurances that are applicable to home improvement, their definitions, and why they are important.
The 4 types of applicable Construction Risk Insurance policies in Wisconsin are:
Here are the definitions of each policy:
Worker’s Compensation Insurance covers any accidents or injury incurred by any employee of a business operating in Wisconsin. Worker’s Comp policies are required for any business that operates with employees in the state. The policy protects you against lawsuits and liabilities of worker-related injuries while your project is being constructed.
General Liability Insurance insures against accidents that could occur while your project is under construction, or any damage caused to your home or a neighbor’s home or property while the project is being completed. It does not provide any coverage after the project is complete.
Products and Completed Operations insures against losses arising out of services performed by building contractors after the project is completed. It covers that your project was properly installed as specified — and protects against future workmanship-related defects. The Products coverage component covers any supplied manufacturer’s products that don’t perform to spec. This insurance is often the only way to recover losses on a finished project.
Disclaimer / Warning: Many construction insurance policies have exclusions for claims against Workmanship or Craftsmanship. These exclusions can severely limit your protection. Solution: Call the insurance agent listed on the policy and confirm the certificate covers workmanship and craftsmanship — make sure there are no exclusions that limit coverage or push out-of-pocket risk onto you.
Errors and Omissions — also known as Professional Liability Insurance — insures against claims arising from a failure to render professional services. For construction projects, it insures that proper specifications were designed.
Contractors operate without Worker’s Compensation policies to avoid the expense and pocket more profit. It is illegal in Wisconsin to operate with employees and no Worker’s Comp. Contractors can be fined by the state if caught — but there is no pro-active enforcement mechanism in place to police compliance.
Contractors do not carry General Liability Insurance to avoid the expense — once again to make more money. There is no risk or penalty to contractors for not carrying it. Properly licensed contractors in Wisconsin must maintain a current General Building Contractor Certification and Financial Responsibility Certification — which require either documented $250,000 of liability coverage OR a posted $25,000 bond. The only enforcement mechanism is that municipalities require the contractor’s General Building Contractor Certification number on permit applications. There is no pro-active enforcement to police compliance.
Products and Completed Operations insurance is voluntary in Wisconsin — not required as a condition of contractor licensing.
Errors & Omissions is voluntary in Wisconsin — not required as a condition of contractor licensing.
If you hire a contractor without proper Worker’s Compensation Insurance, you are considered the General Contractor — and take on ALL liabilities and worker-related project risks.
If there is no General Liability policy in place, YOU are considered the general contractor and take on all the construction liabilities and project risks. If the contractor is under-insured, potential risks and liabilities could exceed the coverage and you would be responsible for any shortfalls out-of-pocket. Make sure any contractor you consider is covered for enough General Liability to cover you and your home — the policy must exceed the value of your home and belongings, and have excess coverage for incidentals if there is a catastrophic accident. The owner may be held liable for any bodily injury or death of others, or property damage, that arises out of the work performed because of negligence by the contractor. The owner may not be able to collect from the contractor damages for any loss sustained because of a violation of the One- and Two-Family Dwelling Code.
If a Products and Completed Operations policy is not in place, you will likely have no recourse for improperly installed projects, and no way to enforce product warranties or contractor workmanship guarantees.
If your contractor has no Errors & Omissions policy in place, there is no legal recourse for incorrectly specified projects that fail prematurely.
First, decide what insurances are important to you and your project. The absolute minimum any contractor should carry is Worker’s Compensation. The other three policies are voluntary in Wisconsin, but they exist to protect you — they should be highly considered.
Wisconsin law (ATCP 110.05(4)) requires that any contractor who claims to have insurance — and who is selling you products or services at your home — must show you a copy of the policy that includes the insurance agent’s contact information. That way you can call to verify the policy is valid before you sign.
Call the insurance company yourself and verify the validity of every policy presented. Confirm the certificate covers workmanship and craftsmanship, and that there are no exclusions that limit coverage or push out-of-pocket risk onto you. Don’t take the contractor’s word for it.
Guardian carries all four Construction Risk Insurance policies — Worker’s Comp, General Liability, Products & Completed Operations, and Errors & Omissions. Schedule a free consultation and we’ll walk you through the certificates so you know exactly what’s covered before any work begins.
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