Liability w/ Unlicensed Contractors and Handymen - insurance?

Question

So the cost of unlicensed contractors for anything from painting to plumbing is much cheaper than licensed and bonded contractors. I basically wouldn't be in business if I hired full price contractors

For our rehab we use a lot of handymen and unlicensed "contractors" who do similar work for fractions of the price.

I have a general liability insurance for my properties and was wondering if something were to go wrong if I would be covered. If one of the workers got injured could they sue me, and if so would general rental liability insurance cover this?

Also what if something were to go wrong with their work and a tenant got injured? Would the insurance try to not pay out if it could be traced back to one of my unlicensed contractors?

I had read somewhere that insurance companies generally cover with their insurance

What other things should I do to protect my investments and hard work?

I was wondering if any seasoned vets want to give their opinions?

Joe Bertolino · Answer

Handymen can purchase their own general liability (approx $750 per year) and you can have them sign a contract and name you as additional insured with a waiver of subrogation. Licensed or not, make sure they have their own insurance and that you are named as an AI.

Luis A. · Answer

Let's make sure we distinguish between licensing and insurance. Not all contractors are required to be licensed (at least not in my state) but everyone should be insured. In my state only GC's, HVAC, plumbers and electricians are required to be licensed. And I believe (correct me if I am wrong) that licensing will require insurance. You can always ask them to sign a release of liability but in all honesty I am not sure how much that protects you. I figure it's better than not having it. Can they sue you?...Almost anybody can sue you for almost anything the question is, will they? My experience has been that insured workers will be more expensive. But I try to build that cost into my estimates. I'll be honest and tell you that I might have hired unlicensed workers when I did not know better. But I assure you I will not let someone get up on a roof that is not licensed.

Terry Portier · Answer

Although the basic concept of subrogation rights is relatively straightforward, subrogation is considered to be a highly technical area of the law, the subrogor may be limited to full indemnity.

Steve Babiak · Answer

This thread had some discussion along the same topic: http://www.biggerpockets.com/forums/67/topics/62988-contractor-liability-waiver-form

Terry Portier · Answer

Some people are getting confused with Federal Tax laws/Publications and State Liability Law. One way to indemnify is in a LLC. Best place to find out what an insurance policy covers is to read it.

Brian Levredge · Answer

Just because a contractor has a license it does not mean the liability stops with them. For instance, in CA if you don't have any employees then you are not required to carry worker's comp. Most contractors like to 1099 their subs to get around all this even though those "subs" don't really qualify as such in a technical or real sense as it also eliminates the need to deal with payroll withholding taxes as well as WC premiums, all of which add up to quite a bit in the first place. The point of licensing in the first place is to provide the contractee with recourse in the event the contractor fails to complete the specified contract. If you are using unlicensed workers you don't have the same recourse as a judge may be likely to throw out your claim since you in effect broke the law by hiring the worker in the first place. As an aside, there are handy man policies out there that offer great GL coverage for a very small premium. Again if it's only a single handyman he is not required to carry worker's comp.

Donna Smolinski · Answer

I've been pondering the same questions lately. I've ALWAYS used licensed/insured contractors, but profits are shrinking, so I've "considered" using unlicensed contractors for simple jobs that have little injury risk. From the research I've found so far, it appears that most of the answers to your questions are NOT what we want to hear. Unlicensed workers can be risky business for all the points you stated above. However, I'm still inclined to use handymen, unlicensed workers for simple jobs like gardening, simple landscape improvements, interior paint (single story, low ceilings only), drywall repairs, etc. Anything that has higher injury risk, scares me. Murphey has always lurked me (Murphey's law). ANY/ALL unlicensed workers that I use (if I decide to do this) will have to sign an Injury Liability Waiver form and show proof of personal medical insurance coverage. The waiver will include a stmt that says they will maintain their medical insurance during the entire work period. I don't want someone on our job sites that doesn't have medical insurance because that will increase potential liability even more. Now if there was a major injury, there's a good chance that a court may throw out the waiver and hold us responsible, even with a waiver signed, which is why I do not want to employ anyone for work requiring ladders, granite fabrication, roof work or other high liability jobs. Just my $.02. I'd been curious to know if anyone has horror stories regarding this???