One of the first principles of gambling is this: Never take a risk you can’t afford to lose.
When you hire an unlicensed contractor to do work on your property or fail to secure the necessary permits for that work, you are doing just that.
Here’s why: When general contractors take jobs, they will hand off parts of it to one or more subcontractors. But the general contractor has overall responsibility for legal compliance, safety, quality of workmanship, and just about everything else that happens on the job site.
Here’s the dirty little secret: If you don’t hire a licensed and insured contractor to handle your project, you’re the general contractor!
If your unlicensed contractor breaks a sewer line, you’re responsible. If a worker gets hurt and can’t work for two years, and there’s no worker’s compensation coverage, you are on the hook for that worker’s medical bills and lost wages.
To learn more about the risks involved in hiring unlicensed/uninsured contractors, please read below. And, if you’re curious to find out how your homeowner’s insurance will respond to these types of situations, please give our office a call.
General contractors take on a ton of responsibility, and with that comes an equal measure of potential liability. That’s why licensed and responsible general contractors carry much insurance, from general liability insurance to workers’ compensation insurance.
All these different forms of insurance coverage ultimately protect the customer if things don’t go according to plan. Some states won’t even issue a contractor’s license if the minimum level of insurance isn’t in place.
Additionally, all subcontractors (when performing work for the general contractor) will either have their insurance or will be operating under the general contractor’s license and insurance coverage. Either way, as the customer, you will enjoy a substantial level of protection simply by using a licensed and bonded contractor. Their insurance protects you from bearing the financial consequences of a job gone wrong or a workplace injury.
What Can Go Wrong With Unlicensed Contractors?
Many things can go wrong on a construction job, from injuries to shoddy workmanship to the destruction of power, sewer, or water lines. Ultimately, all issues are the responsibility of the general contractor. The general contractor and their insurance carriers are the primary payers if something goes awry on the job. This also means that if you are personally operating as the general contractor, you must be aware of the potential risks and litigation.
Your standard homeowner’s or landlord liability insurance will not cover you for these events. Most of these policies exempt damage caused by the knowing use of illegal or unlicensed contractors.
Consequences for Landlords
Landlords should be very wary of property management companies that use unlicensed or uninsured contractors. When they do, they are potentially putting you at risk, too.
If your property manager brings in an unlicensed or uninsured contractor, and something goes wrong, courts have generally held the property owner liable along with the property manager.
The Danger of Hiring Friends as Contractors
Hiring friends as contractors don’t make liability and risk issues disappear. Everyone can enter an arrangement with the best of intentions. Still, when your buddy falls off the ladder and files a claim with his insurance company, the company may pay the claim and then go after you in subrogation proceedings (the area of law in which insurance companies fight to get reimbursed after paying their customers’ claims).
In one California case, Mendoza v. Brodeur, a homeowner asked his neighbor to do some work for him on his home. But the neighbor got hurt on the job. The homeowner thought he was hiring an independent contractor who had his insurance. The court rejected that reasoning and found instead that the homeowner was the neighbor’s employer and, therefore, should have had workers’ compensation coverage in place to cover the possibility of injury. Since worker’s compensation wasn’t there, the homeowner had to cover the costs personally.
Summary: the Risks of Hiring Unlicensed Contractors
Failing to hire an insured, licensed, and street-legal contractor could potentially cost you everything you own. If the worst happens, you could be sued into bankruptcy. Additionally, most homeowners insurance policies specifically exclude damages arising from the work of unlicensed contractors, so they will not protect you. Therefore, if you have a home project that presents a risk, we highly recommend hiring a licensed general contractor to assist with the job.