Key Takeaways
- Require GL ($1M/$2M), WC, and auto with Additional Insured.
- Bonds cost-effective for projects >$100K.
- Indemnification shifts liability for contractor-caused claims.
- State law governs—use local construction attorney.
Primary risk transfer mechanisms in contractor relationships.
Insurance Requirements
Require: GL ($1M per occurrence, $2M aggregate), Workers Comp, Commercial Auto. Name investor as Additional Insured on GL policy.
Bonding Requirements
Performance bonds guarantee completion. Payment bonds guarantee sub payments. Cost 1-3% of contract. Cost-effective for projects >$100K.
| Bond | Protection | Cost | When |
|---|---|---|---|
| Performance | Completion guarantee | 1-3% | >$100K |
| Payment | Sub/supplier payment | 1-3% | >$100K |
Surety bond types
Indemnification Clauses
Require contractor to defend and hold harmless from claims arising from their work. Must cover defense costs. State law governs enforceability—use local construction attorney.
Compliance Checklist
Control Failures
Accepting verbal insurance assurance without certificates
No coverage when injury or damage occurs
Correction: Require certificates directly from carrier, naming investor as Additional Insured
Skipping bonds on large projects
Contractor default leaves investor funding completion at premium
Correction: Require bonds on projects >$100K
Using generic indemnification templates
Unenforceable under state law
Correction: Local attorney drafts state-compliant language
Sources
- Insurance Information Institute — Contractor Insurance Guide(2025-01-15)
- NAHB Risk Management for Remodelers(2025-01-15)
Common Mistakes to Avoid
Accepting verbal insurance assurance without certificates
Consequence: No coverage when injury or damage occurs
Correction: Require certificates directly from carrier, naming investor as Additional Insured
Skipping bonds on large projects
Consequence: Contractor default leaves investor funding completion at premium
Correction: Require bonds on projects >$100K
Using generic indemnification templates
Consequence: Unenforceable under state law
Correction: Local attorney drafts state-compliant language
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1.What type of insurance should an investor require the contractor to carry?
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