If you want to protect your artisan contractor business against financial losses, then contractor insurance and bonds are a must. Not only does the right coverage help you keep your hard-earned cash, but in some cases, it may even be required by law in California.
What Contractor Bonds are Required by Law in California?
To get a contractor’s license from the Contractors State License Board (CSLB), you must have a surety bond or cashier’s check on file in the amount of $25,000, effective January 1, 2023. This amount was increased from $15,000 as part of Senate Bill 607.
A surety bond, also known as a contractor license bond, assures the State of California that the surety company will pay damages if the contractor violates state license laws. A surety bond protects homeowners if their contractor violates licensing laws or commits fraud in the execution or performance of a contract. A surety bond claim can also be made by an employee who isn’t paid wages or fringe benefits.
If the surety bond amount is depleted down to zero, you’ll have to purchase a new bond in order for your contractor license to remain valid.
Get a contractor license bond.
Contractor license bonds aren’t the only type of surety bond available for an artisan contractor. You may also need one of the following:
Contractor Bid Bonds: ensures contractors make serious bid proposals. Bid bonds are designed to protect project owners from bidders who may not have the financial means to accept the job for the price quoted on a bid. In California, bid bonds are required for all public and federal construction projects.
Contractor Performance & Payment Bonds: guarantees satisfactory completion of a project by a contractor. A performance bond guarantees the faithful performance of the contract and payment (payment bond) of materials and labor by the contractor to all subcontractors and material suppliers. These bonds are typically issued together.
What Contractor Insurance is Required by Law in California?
When it comes to contractor insurance, California state law only requires you to carry one policy: workers' compensation insurance.
Workers’ compensation insurance is required for any business that employs one full- or part-time employee under California Labor Code Section 3700. Workers’ comp is a type of liability insurance where you, the employer, take full responsibility for the financial costs of employee injuries or illnesses resulting from the work they do on your behalf.
Failing to have workers' compensation coverage is a criminal misdemeanor offense under Section 3700.5 of the California Labor Code, punishable by a minimum fine of $10,000 and/or imprisonment in the county jail for up to one year. Failing to carry workers' compensation means the immediate suspension of your contractor’s license.
In addition, California state issues penalties of up to $100,000 against illegally uninsured employers. To top it off, if you are not insured and an employee gets hurt or sick because of their work, you are still financially responsible for paying all of the bills related to their illness or injury.
Note: All active C-39 (Roofing) licensees are required to carry workers' compensation insurance or a valid Certification of Self-Insurance, whether or not they have employees. Failing to carry workers’ comp as a C-29 roofing contractor will result in the loss of your contractor license.
Get workers’ compensation insurance.
What Additional Contractor Insurance Should You Carry?
As a California contractor, your legal requirements for bonds and insurance stop here. Once you’ve got your license bond and workers’ compensation in place, you’ve met all of your obligations under the law/ state license board.
However, these additional contractor insurance policies can help you protect your bottom line and keep your cash flow in place. Because if there’s one thing we’ve learned in our years of protecting artisan contractors, it’s this:
Construction is one risky business.
That’s why we often recommend the following policies to help protect your business.
Contractor General Liability
We call this one the foundational insurance policy for a reason. General liability provides coverage against the risks most likely to affect your business: third-party claims for bodily injury or property damage.
Imagine if one of your employees accidentally backed one of your vehicles through a neighbor’s fence. Or that a homeowner made an un-sanctioned stop at the job site and tripped over a power cord, falling and breaking an arm.
If you get hit with a third-party injury or property damage claim, general liability (GL) insurance is designed to cover the costs of:
- Medical bills
- Property-damage repairs
- Legal fees, attorney fees, judgments, and settlements
Contractor GL may even protect your business against third-party advertising claims, such as slander, libel, or copyright infringement resulting from your website, social media use, or other marketing activities.
Tools and Equipment Coverage
Tools and equipment insurance is a type of inland marine insurance that’s designed to protect equipment that’s on the move. If you have tools/ equipment valued at $10,000 or less, this specialty insurance can cover losses from theft and other covered losses. Think of the financial investment you’ve made in the tools that help you get the job done. As that equipment gets transferred from job site to site, tools and equipment insurance can help protect it.
Did you know? Tools and equipment insurance is a type of inland marine policy known as equipment floater insurance — think of it as protecting your equipment as it floats from one site to another. There is another form of inland marine insurance for contractors known as installation floater insurance, which covers installation materials and equipment. If you install hardwood floors or copper wiring, for example, you may want the added protection of both.
Get tools and equipment insurance.
Commercial Auto Insurance
If there’s one thing just as crucial to your success as your tools and equipment, it’s the work vehicle you use day in and day out. Unfortunately for some artisan contractors, one small mistake can mean the difference between having the right coverage in place for a work truck or being left totally exposed and vulnerable when an accident happens.
Personal auto insurance — the kind you’re required by law to carry for all vehicles in California — isn’t designed to cover vehicles used for business purposes.
If you’re only using a personal auto policy to protect your work truck and you get rammed by a distracted driver who runs through a red light while texting, there’s a very good chance that your insurance carrier will deny your claim. Not only will you be left paying to repair the damage to your vehicle and its contents out of your own pocket, but that same insurance carrier may even drop you as a result.
Only commercial auto insurance is designed to protect the vehicles used, owned, and leased by your company.
Commercial auto insurance may be a smart move if you:
- use your personal auto for work purposes
- have employees that use their own personal autos for your business
- let your employees use your vehicle for work purposes
- owns, rents, or leases autos under your business name
Get commercial auto coverage.
Get a Personalized Quote for Artisan Contractor Insurance
This is just a short list of the possible risks you face as you start, build, and scale your artisan contractor business, and just a few of the contractor insurance policies that can help you protect it. Every business is different and your risks may be completely different than another contractor’s risks.
At Aegis Insurance Markets, we specialize in helping California artisan contractors protect their businesses. From our headquarters in the Truckee-Tahoe region to Sacramento and the Bay Area, San Diego to Siskiyou, and everywhere in between, we know exactly what risks are inherent to your industry, class code, and stage of business.
Let one of our experienced artisan contractor insurance professionals help you create a personalized plan to protect your business. We’ll recommend the right insurance coverage for your needs, and shop through the top-rated carriers to find the best coverage at the right price.
When you work in the construction industry, the risks and stakes are high. Let Aegis Insurance Markets help you find the right coverage you can afford. Request a free quote today.