Rehab in small towns, no contractors are insured, my protections?

Question

Hi Rehabbers,  I've rehabbed over 40 rentals in Atlanta to smaller towns around the state.  Few contractors had their own insurance, with the exception of the roofers I hired.  In small towns when you put up a craigslist gigs ad for painters, carpenters etc, no one has insurance.

Reading here, having contractors sign a Contractor Agreement that shields the investor from the contractor claiming they where en employee, its debatable whether an injury on your project whether this contractor agreement will be of any value.  Anyone have this help?

I've read here of no solution, umbrella etc to buy liability coverage for any on the job accidents.

Anyone have a solution when using un-insured contractors?  (which is un-avoidable in small towns).

Aaron K. · Answer

Your cheapest option believe it or not might be to just pay a contractor a bit extra from a larger city to make the drive, depending on the job some might do it for free don't assume that big city contractors won't make a drive if it is within 1-1.5 hour drive just because it isn't listed in their service area.

Jason Bott · Answer

@Curt Smith Workers Compensation  (WC) is the coverage you are missing.

You will get many conflicting responses on BP because WC insurance law can differ greatly from state to state.....and the cost can differ greatly as well.

In order to have the risk removed from hiring uninsured contractors, you would purchase a WC Policy under your entity that is paying the contractors/workers.

Please keep in mind once you start a WC Policy, mostwill extend coverage to anyone you have helping you;  worker, family member, volunteer.  So you are incurring additional cost with each person you hire.

Another important point, if you pay an uninsured carpenter $10k with 1 check, and $8k was material cost, the work Comp Policy considers the $10k as payroll.  So pay for materials direct from supplier, only paying the worker Thier wages.

Chris C. · Answer

I have looked into getting workers comp to cover "contractors" I hire but could not find a coverage that worked.  Had to have full time employees.

A friend of mine owns a temp agency and I have discussed running unlicensed people through his temp agency.  This does make it a little difficult because they would need to be paid hourly which I hate to do with "contractors".  The rates on top of their hourly pay was not bad and definitely worth looking into.

Steve Babiak · Answer

Check with your own insurance agent(s) as to whether you can get your own workers compensation policy. Then your own policy will cover claims made by any uninsured workers. If you have any employees, this should be offered to you already.

Workers compensation coverage is classified as "retrospective" coverage; you have to get insurance certificates from all contractors (where possible), and you have to keep track of the type of work being done by all (especially the uninsured). You get audited to determine what you owe in premiums after the fact, based on number of workers and type of work (for those who lacked coverage for workers compensation).

Kuba F. · Answer

Thanks for bringing it up.  I was sure you were mistaken, so I had to dig around for it, but according to these guys, at least for builder's risk you're right:

http://affinitylps.com/is-it-covered-contractors-i...

Why is this damage excluded? I thought I had “Builder’s Risk” coverage…

Even if you have the appropriate coverage for a property undergoing renovation, the reason for these exclusions is to avoid an overlap of coverages. Any property damage, injuries to a contractor’s employees or negligence in their workmanship is covered under policies that the contractor procures for himself, such as General Liability and Workman’s Comp. (Subcontractors should get their own liability coverage, too.)

I still can't believe it frankly.

I'm going to have to double check my umbrella now...

If it makes sense, one thing you can try is to pay them the hundred extra bucks or whatever it costs to buy insurance and put you on as additional insured as a precondition to start work.

Ethan Henning · Answer

@Curt Smith I had this similar issue on a property I had out in Woodbury! I don't think I will be investing out in the sticks again! haha

Karen Margrave · Answer

Rather than craigslist, start looking on sites like Homeadvisor, Angies list, etc. Also, on Craigslist there's a link for skilled labor, use that as usually that's where the licensed contractors are.

Matthew Paul · Answer

If they are not carrying insurance , they are NOT contractors .They are simply workers . And you are their boss and employer .  Contractors are licensed professionals that are running a business , they carry insurance and workmans comp .

No real contractor will answer a craigslist ad or place one .

Curt Smith · Answer

I should have mentioned in my original post:  Landlord insurance agents have told me that the std landlord policy does NOT cover uninsured workers who are injured.  This is my point and reason for asking for factual solutions.  So far my asking around for umbrella carriers has not found coverage for this issue either.

IMHO this is a big gap and risk factor for us rehabbers.

I've been asking agents for some time now, no statements that their policy covers this risk.

Rehab in small towns, no contractors are insured, my protections?

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