As a business, you are likely to come across contractors at one point or another, but not all contractors are the same.  Some contractors enjoy proper insurance coverage, whereas others don’t come with insurance. For businessmen, engaging with contractors lacking insurance coverage can be no less than a liability with grave financial and legal consequences. On the face of it, uninsured contractors can lure you with the prospect of low rates, but the risk of an accident means that you are all the more likely to bear hidden costs on your own that may include property damages and legal disputes.

Businesses must be aware of the risks before jumping headfirst into an agreement to ensure they have adequate coverage against such eventualities. In this article, we explain why you should avoid hiring uninsured contractors, outline how you can verify coverage, and describe the merits of having a credible insurance partner by your side to secure your long-term interests. 

The Risks of Hiring Uninsured Contractors

Contrary to expectations, hiring uninsured contractors can expose businesses to risks that far outweigh any savings and instead incur significant financial losses. 

Liability for Injuries

Suppose a contractor or subcontractor gets injured while working on your property. If the worker is not privy to compensation coverage, you may find that liability falls on you to cover medical expenses and lost wages while the worker is unable to work. 

Property Damage

If your property or that of a third party suffers any amount of damage during contractual work, your business will be held responsible for the damages if the contractors don’t possess general liability insurance

Legal Disputes

You and the contractor are unlikely to see eye to eye in all matters. A legal dispute can arise whenever there is a clash of interest, be it due to quality issues, agreement over contractual terms, or an injury claim. You could be thrust into a protracted and expensive legal battle that you never saw coming. 

Lack of Accountability

Accountability also becomes problematic when you work with contractors without insurance, which means you can’t expect them to follow the safety standards or professional guidelines that apply to insured contractors. This means a greater risk of an accident or work of a low standard. 

Risk of Non-Compliance 

Quite a few job sites attach insurance coverage as a key requirement when hiring contractual workers. You can be guilty of violating the law if you do that and face the risk of fines and penalties for failing to comply. 

The Financial Impact of Hiring Uninsured Contractors

It may appear convenient to get on board an insured contractor for the low upfront costs, but the financial repercussions of an accident or dispute can take a toll on you. The precise value of insurance for a contractor depends on the coverage type and limits. For example, a $1 million coverage for general liability insurance is likely to cost you around $1,090 annually. 

A lack of coverage can affect your business in the following ways. 

• Medical Expenses

The medical bills incurred in the wake of an injured worker or a bystander or visitor on your site can fall on the hiring party. The construction industry reportedly bears the highest cost for a single case of fatal or non-fatal injury, which stands at approximately $27,000, as opposed to the $15,000 average for other industries. 

• Repair Costs

You are required to bear the expenses of repair out of your pocket in case of any property damage, hence causing project costs to go up. 

• Legal Fees

If you are caught up in a lawsuit or dispute, you will be forced to pay thousands of dollars in legal fees until you arrive at a settlement. 

• Project Delays

Uninsured contractors generally lack resources to make amends for any mistake or omission at their hands. This can leave you dealing with unforeseen delays while straining your project budget. 

How to Verify Contractor Insurance Coverage

The first step in avoiding the trap of an uninsured contractor is to be diligent from the outset. 

Request Evidence 

Ask contractors to provide a certificate of insurance (COI) to authenticate that they are indeed insured. These documents consist of details about how liability is to be shared, who is to pay for workers’ compensation, and any other relevant coverage. 

Verify Coverage Limits

Review the policy limits to get a clear idea of the extent to which the policy can cover your project requirements. 

Contact the Insurance Provider

You can cross-check with the contractor’s insurance company to ensure that the coverage is in place and active. 

Draft Contracts with Insurance Requirements 

Include an insurance clause in your contract and make payment conditional on verifying coverage. 

Seek Additional Insured Endorsement

To strengthen protection, you can also ask contractors to include you in their list of insured parties on their policy documents. 

Conclusion 

The fact of the matter is that an uninsured contractor brings more risks for project owners than any material gain. The risk becomes greater for businesses managing multiple projects, and that’s where an experienced insurance broker like Riverbend Insurance can help you navigate the insurance coverage process with success. At Riverbend, we have a close insight into the risks that come with hiring uninsured workers, and therefore, we are geared to support you every step of the way.  

We boast a team of experts that collaborate with you to identify the most appropriate insurance coverage options to provide fool-proof protection against liabilities and the associated costs of insurance claims. We verify the insurance credentials for contractors to mitigate underlying risks and give you the confidence to go ahead without any legal worries or financial concerns. Contact us today to make the most of your insurance options and reap the benefits of a financially secure and risk-free relationship.