Do I need to have insurance for my rehabbers? - Posted by Insurance Needs

Real Estate Investing
1

Posted by JT-IN on July 31, 2008 at 07:07:47:

It is not all that much, just another cost of operating a business… but it is an economy of scale factor… On two rehabs the % is going to be much higher than if you were doing 20 of them…

Just talked to a guy yesterday who is doing lots and lots of business, but he says he needs to do MORE so he can reduce his expenses PER DEAL… All based on percentages…

Also the costs of liability and work comp will vary so much from area to area, so any number that I would pay would be meaningless to someone elsewhere…

2

Do I need to have insurance for my rehabbers? - Posted by Insurance Needs

Posted by Insurance Needs on July 28, 2008 at 11:15:53:

I am getting ready to start a medium size rehab (my first one of any major size - $25K or so), and some of the people giving me bids have told me they do not have insurance.

I was curious to see if someone would give me some advice on what you do with people in this position.

Do you a) go and get insurance for yourself/company to cover them, or do you b) hire someone who does have insurance?

The question becomes, I guess, if they fall down off a ladder painting the ceiling and have to be taken to the emergency room, who pays the bill if they don’t have insurance? Am I liable for their injury?

Thanks for the help.

3

Re: Do I need to have insurance for my rehabbers? - Posted by Ed in Idaho

Posted by Ed in Idaho on July 28, 2008 at 21:18:17:

Disclaimer: I am Not an insurance agent nor do I work for the IRS.

Just a couple of comments…

First, If it looks like an employee, acts like an employee, and smells like an employee…it’s an employee in the eyes of the IRS. In other words if these guys only work for you, and no one else, they are your employees in the eyes of the government, no matter how much you try to call them subs. But there should be no problem calling them subs…unless there is a problem, which leads to the next comment.

There are about 1001 more things that can go wrong on a job site besides falling off a ladder. It is a necessarry evil, but somebody better have insurance in case something goes wrong. If they don’t have it, you better get some as the general contractor/owner just in case. But I don’t know how much of a gambling person you are.

4

Depends on what state you are in… - Posted by JT-IN

Posted by JT-IN on July 28, 2008 at 12:58:03:

In part… as to who would be liable if the contractor got hurt on your property. Some states are vigilent about this while others have a closer look at who is liable or/or negligent.

First thing is that you should have a blanket liability policy… this will protect you if someone filed suit against you, including a contractor working for you. These policies also have 5K of med coverage, that regardless of how something happens they will usually pay that amount for medical w/o question.

Now your contractors should have liability as well as workers comp. This covers anything that they screw up or damage as well as any workers that might get injured on the job. In the event that they don’t have it be aware that the risk could fall back to you, so be sure to have the liability coverage.

Also be aware that if you have a comm’l insurance policy for liability, they are usually auditable policies. What this means is, they can come along next year and see what you sales, rents and total exposure was under the policy. During the audit they discover that there was additional risk, such as contractors working on site, they will want to see the contractors proof of liability coverage, as well as workers comp. You should have a Dec Page for each of anyone that does work for you. Now lets say you have neither and the auditor sees through checks written that you paid Jones Const 25K for repairs; (incl materials too). You have NO cert of ins for liability of work comp for Jonsie, then the ins co is going to assess you for the risk that they acutally took, unknowingly. Sound unfair…? Not really. because if Jonsie would have damaged something w/o ins your policy would have paid… so they took the risk for which the want to be paid. Same for work comp, they will assess that premium against you… this can get expensive, so think twice about using uninsured workers, because you are at risk for paying more $$$ out when the ins catches this…

Now I know I should charge for this ins lesson, but I will let it slide this time… :slight_smile: The subject is way more complex than most folks know about, UNTIL they get caught. Oh yea, when you get caught, they can go back additional years if they choose to, kind of like the IRS audit.

So understand the risk you take, before you move ahead.

JT-IN

5

but… - Posted by BigV

Posted by BigV on July 29, 2008 at 13:01:08:

realistically speaking, what could happen?

1st, if I require that my contractors carry liability insurance AND workman’s comp insurance, but I don’t check whether they do (wink wink), and something happens.

What can that contractor do in case they fall and become disabled (worst case)?

Can they sue ME? If so, in order for me to be forced to pay, should there be PROOF that I was somehow at FAULT?

I have some buddies in construction and they tell me that there are contractors who get drunk at lunch and then go up on scaffolding.

Why is it the owner(s) or GC’s fault if someone like that becomes injured?

How likely are they to win against someone personally if the entity that hired them is an LLC?

  1. Realistically, how possible is it to check everyone’s insurance when you are hiring a General Contractor? The GC could subcontract a portion of his work without letting you know. How can you possibly prevent this from happening?

  2. I’m guessing that most rehabbers probably ignored the insurance and just took it as a part of doing business. How can anyone compete with other rehabbers that are spending 15K-25K, whereas with your insurance you would be easily doubling the amount of money you’d have to spend while working in the SAME neighborhood.

After all, your end buyers don’t care whether everything was bonded and insured. They only look at the bottom line.

6

I’m in MO - Follow up Question - Posted by Insurance Needs

Posted by Insurance Needs on July 28, 2008 at 13:31:38:

Thanks JT-IN…would I be covered If I hired a guy who had his own insurance? That is, would I still need workman’s comp, etc?

I spoke with my insurance agent today and he told me that I can’t get a commercial liability/umbrella policy until I have workers comp. I’m not sure how many more of these rehabs I’m doing so I’m not too crazy about paying $2K for workman’s comp, and then more money for the umbrella policy.

Does hiring someone insured solve the problem? Thanks again-

7

There is a right and wrong way… - Posted by JT-IN

Posted by JT-IN on July 29, 2008 at 23:46:57:

To go about everything…

Hiring subs w/o ins or work comp definitely ups the level of risk that you assume. Do folks do this w/o a hitch…? Yes, until the hitch happens… This is an individual choice that each of us makes. I simply try to point out the parameters and what to be wary of…

About the LLC question… I would ask, who hired the person. You personally or some LLC…? Problem being is that you personally are involved in the conscious decision to move ahead w/o the ins… Not sure if the LLC would protect you in that instance or not.

Best suggestion is don’t cut those kind of corners and you don’t have to worry about it.

JT

8

Re: but… - Posted by steve

Posted by steve on July 29, 2008 at 16:38:16:

in my market making sure the proper permits are pulled is as important if not more important than checking everyones insurance.

Of course some times it is easier to get permits pulled using a GC.

9

Re: but… - Posted by Natalie-VA

Posted by Natalie-VA on July 29, 2008 at 15:18:33:

What’s the worst that can happen? You could go bankrupt. For me, that would be unacceptable.

It is possible to do rehabs at competitive prices and still get certificates of insurance for your subs. I get certificates in addition to carrying my own builder’s risk and general liability. I don’t see how it can double the price of a rehab unless you’re using a GC. I’m still at risk, even though I take the proper precautions.

–Natalie

10

Re: but… - Posted by michaela-CA

Posted by michaela-CA on July 29, 2008 at 13:08:34:

I admit, I’m one of those that doesn’t check for insurance. Yes, I know, you’re supposed to and all kinds of stuff can happen, if you’re not insured. I guess I just have a high risk-threshold ;-). I’ve always been my own GC and hired small sub-contractors. They usually gave me the best prices as they may only have 1 helper working with them and didn’t have to have workmen’s comp etc. A large roofer, electrician, plumbing co. would have easily charged a lot more than what I was paying.

Did I gamble? yep. But it’s a gamble I’m willing to take.

michaela

11

Yes, insured solves the problem n/t - Posted by JT-IN

Posted by JT-IN on July 29, 2008 at 23:39:32:

$

12

here is some legaleese for you :slight_smile: - Posted by BigV

Posted by BigV on July 30, 2008 at 04:11:38:

http://www.ndcourts.com/court/opinions/8933.htm

  1. Under Section 65-01-02(5), par. c, N.D.C.C., a general contractor is deemed the employer of employees of subcontractors and independent contractors operating under agreements with the general contractor only until such subcontractor or independent contractor obtains workmen’s compensation coverage.

This case if about subcontractor of one company suing another subcontractor.

13

Re: There is a right and wrong way… - Posted by BigV

Posted by BigV on July 30, 2008 at 04:06:38:

But, before I’m forced to pay for someone’s injuries, should not there be proof that I was at fault?

Do you know of any ACTUAL cases where homeowner was force to pay workmans’s comp and/or disability for hiring uninsured contractors?

In my view, a contractor would be stupid to start suing someone for a claim, if:

(a) they were hired as an independent contractor (not an employee)
(b) they specifically signed a paper that said they are expected to carry their own liability and workman’s comp insurance.

14

That pretty makes the point… IMO - Posted by JT-IN

Posted by JT-IN on July 30, 2008 at 05:15:47:

If your subs don’t have ins then they and their quasi workers become your employees… Couldn’t be much clearer.

Whether you realize that you are taking the risk or not, you certainly are…

Conclusion: Hire insured workers; both liability and WC. Otherwise have plenty of liabilty ins, and work comp, and expect additional costs from your ins co if they audit you comm’l policy.

OR, do otherwise, and travel at your own risk.

JT-IN

15

Re: There is a right and wrong way… - Posted by Natalie-VA

Posted by Natalie-VA on July 30, 2008 at 06:15:29:

I’ve had insurance agents tell me that I could be held liable for someone else’s subs. In other words, if the guy I hire doesn’t carry workman’s comp and his uninsured sub gets hurt, it’s back on ME, not him.

Doesn’t make sense, but I’ve heard it from agents more than once. Check the laws in your state.

–Natalie

16

1000’s of cases - Posted by JT-IN

Posted by JT-IN on July 30, 2008 at 05:10:08:

V:

Almost every liability policy protecting property and its owner has a medical “throw in” benefit. Commonly this is 5K, but it may vary by geographic costs, etc.

Now lets say your uninsured contractor working for you, homeowner or investor, doesn’t matter, is injured on your property… the policy will usually pay up to x benefits (5K is what I am familiar with), w/o any determination of fault whatsoever. Now if that contractor is insured, it eliminates that aspect immediately.

Many, many policies have been tapped in this manner, regardless of fault. Then if there is serious injury beyond that, whether fault truly exists or not, there will be some Atty willing to accept the case on a contingency if for nothing more than settlement value. Thi happens each and every day, all day long. If you own property and you haven’t faced this, it could be that you have just been lucky. Eventually luck runs out…

So bottom line is, why put yoruself in the middle of the potential claim-a-rama…? The existence of a contractors liability and work comp eliminates the concern. For those that want to save a few bucks, or the hassle of dealing with ins certificates, I say buy lots of liability ins… b/c you are at greater risk of suit than someone who uses insured contractors. It is a person choice and a philosophy… I am not trying to change yours, just educate on what COULD happen, if you take the short cut…

JT-IN

17

how much? - Posted by BigV

Posted by BigV on July 30, 2008 at 19:17:29:

JT, how much can one expect to pay to insure themselves completely if they are doing one-two rehabs per year, each at 30-40K rehab cost.

thanks