Does Insurance Matter?

Does Insurance Matter?

I got a quote from one company for $1500 for the project, but I got another quote for only $1150 from a company that doesn’t carry insurance. It’s only for two rooms, I can’t imagine anything will go wrong…
Famous last words! That’s exactly what my mom would say. Insurance definitely matters. As they say in the fire/water restoration business (the guys who deal with home insurance claims), insurance isn’t an issue…until it’s an issue. But is it really an issue for a simple painting project? The answer really depends on how you feel about the term “legal exposure.”
Legal exposure is another way of saying legal liability, which in layman’s terms means “whatever goes wrong is ultimately your responsibility.” Of course you can always sue a painter who spills paint all over your rug or knocks over an expensive vase, but what if he doesn’t have any money? You’d be surprised how many painting contractors are operating with nothing more than a dba (doing business as / fictitious name) and the money you gave them for a deposit. Even if the painting company is an LLC, a broke business owner can simply dissolve the LLC and reopen a new one the next day. Unfortunately, it does happen.
What about a painting contractor who carries the standard contractor’s insurance (known as general liability), but doesn’t have worker’s compensation insurance for his employees? If those employees suffer a workplace injury, they are legally entitled to sue you, the homeowner, for damages! I didn’t know this until recently, and I was shocked to discover it. In this situation, the homeowner can then turn and sue the contractor for damages, but if that LLC dissolves and goes bankrupt, you, the homeowner are indeed liable for the damages claimed by the injured employee.
Personally, I don’t know what is more tragic, the fact that these situations can and do happen to innocent homeowners, or the fact that many of them just aren’t aware of the risks they expose themselves to by hiring uninsured or underinsured contractors.
Here are three reasons why I recommend only working with contractors with proper and sufficient insurance.

  • You’re covered! If anything goes wrong, you don’t need to worry. The right painting contractor will have the right insurance company pay for any damages sustained during the accident so long as their coverage is sufficient. For most contractors, the coverage is either $1M or $2M.
  • Contractors who have their proper insurances are either more responsible or more serious about their business, or both. Think about it. If painting houses is something you do to make some quick cash and you’re not really that interested in sticking around for a while, why waste any of the profits on insurance? Besides, if anything goes wrong, you could just change your phone number and skip town! Contractors who carry the proper insurances realize that their customers deserve great quality work and great protection in the case of accidents.
  • Contractors without insurance or who are underinsured are either unaware of the need for insurance, or are unable to cover the costs of insurance. Both of these are red flags for someone you’re planning to have perform work in your home. Homeowners hope that the people they hire to perform work in their home are experts in their chosen field. At the very least, you expect them to be professional. But given the amount of legal liability that rests on the homeowner who is working with an uninsured contractor, isn’t that a troubling sign that the contractor isn’t aware of the legal implications either? And if he/she is aware but simply can’t afford the insurance payments, there is some troubling incompetence taking place in the business operations, and who knows if that incompetence will manifest itself somewhere in your home.

Given the legal implications of bringing in uninsured contractors into your home, most would say it’s unwise to work with an individual or company that is uninsured or underinsured. For the lower cost of a few hundred dollars, the risk is way too large.
The following is a harrowing, but true story of the importance of general liability insurance.

A fellow painting contractor I know has a business in the midwest. His crew was working on a staining project one summer and the workday was coming to a close. The employees of the company took their stained rags and tossed them into a trash bag and left the bag near a corner of the house in an orderly fashion with the rest of their tools, ready for them to pick up where the left off the following day.

A few hours later, the rags suddenly combusted as the fumes of the stain ignited causing a small fire to start in the trash bag. Within minutes, the entire house was engulfed in flames. The family escaped safely and watched their entire home with all their belongings burn to the ground while the firefighters doused down the flame.

Thank God the company they hired was properly insured. The insurance company paid out the entire claim and the family had their home rebuilt just as they knew it before the fire.

This is an extreme example, but it is a true story, and unexpected things do happen in the construction business. Don’t take the risk if you don’t have to. Make sure your contractor’s have insurance. As my mom likes to say “Hindsight is 20/20!”

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Rick Sabatini

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