Insurance policy & Basement Finishing – Be Very Afraid

With the construction industry being one of the hardest hit in the recent recession, many out of work cost of basement remodel employees have turned to basement finishing and kitchen remodeling to get by. While there is nothing inherently wrong with this, a disturbing trend has emerged.

One question that frequently surfaces is: Should my contractor have his own coverage?

Five years ago this might not have been asked as frequently, but with more fly-by-night contractors out there, homeowners are being told more and more that insurance plan just isn’t that important.

After all, you have your own homeowner’s coverage, right? If your basement finishing contractor damages you, your family, your property, etc., won’t your coverage take care of it?

The answer is an emphatic, “NO!”

For a more detailed explanation, simply call your insurance coverage agent and ask for his insight into the subject. But here is the “in-a-nutshell” explanation.

Basement finishing is a business much like any other. The contractor who accepts your project is doing business in some form or another. Regardless of whether he is an individual, sole proprietor, or owner of an LLC or Corporation, he is in the business of basement finishing.

The moment he, his employees, or his subcontractors step onto your property and begin work, your own insurance policies policy completely washes its hands of any responsibility for their actions.

So, if your home burns down because the plumber’s torch starts a fire, if it falls down because your contractor removed something that shouldn’t have been removed, or if he backs over a neighborhood child while dropping off materials, your could be in a dangerous situation!

Granted, in many cases your insurance plan may pay for initial damages and then go after your basement finishing contractor personally (a process called subrogation). But what if they don’t? How much will it cost, and how long will it take for you to sue him personally?

Even worse, consider the horrible possibility that a neighbor’s child is hurt or worse because of something your contractor did. How awful would it be if your neighbor sued you personally for damages because his attorney realized your insurance-free contractor wouldn’t be worth suing?

Verify that your basement finishing contractor carries commercial general liability AND worker’s compensation insurance (we’ll cover the importance of worker’s compensation in another article). You can even be a “certificate holder” on the coverage policy so you’ll be notified if he decides to cancel the policy after he’s showed it to you.