A contractors bond, or surety bond, is a form of consumer protection. If the work is not completed in a satisfactory manner a consumer may claim against the contractor’s bond up to the bond amount. The minimum acceptable bond amount for contractors in Washington is $12,000 unless you are a plumber or an electrician in which case the required bond amount is just $6,000.
If a claim is made against the contractor’s bond and the surety company that issued the bond finds that the claim is valid, the surety company will make a payment up to the amount of the bond. The catch here, from the contractor’s point of view, is that the contractor must repay the surety company for any amounts paid as a result of a claim.
Until the surety company has been repaid, the bond is no longer valid and no other surety company will issue a bond under these circumstances. With the bond inactive, Labor and Industries will suspend the contractor’s license until they obtain a new bond and will charge a fee to reinstate the license once the bond is active.
General liability insurance, on the other hand, insures the contractor against claims of negligence. This includes bodily injury, property damage and more. Landscapers face risks like flying rocks or other debris that injure someone or cause property damage, as well as claims by customers that something the landscaper did caused damage in the form of injury or property damage.
Unlike a contractor’s bond, general liability insurance does not require the contractor to repay the issuing company. However, both bond and insurance pricing increase as claims are filed and can easily reach a point where either obtaining one or the other is cost-prohibitive or even simply unobtainable. We therefore recommend that a contractor handle small claim amounts out of pocket, rather than turning them in for the insurance to cover.
A contractor must be both bonded and insured in order to obtain a contractors license issued by the Department of Labor and Industries (www.lni.wa.gov). Once both contractors bond and general liability insurance have been obtained, the contractor provides proof of both to Labor and Industries. They will process the application and issue the license after approving the documents provided. The process usually takes a couple weeks although at the time of this writing the backlog is around 6-8 weeks.
The Department of Labor and Industries requires a minimum of either $200,000 in coverage for bodily injury and $50,000 of coverage for property damage, or $250,000 coverage for any combination of bodily injury and property damage. However, most contractors carry insurance with limits of $1,000,000 or higher for a few reasons. First, in the event of serious injury most attorneys will start with a million dollar claim. Second, the increase in cost from the state required minimums to million dollar plus limits is minor in most cases and well worth a few extra dollars both for the increased coverage and for the additional sense of security.
The Hood Insurance Agency specializes in helping contractors obtain the best combination of premium and protection for each unique business. Call us today to speak with one of our experienced professionals.