Licensed, Bonded and Insured 101
If a contractor is licensed, bonded and insured many owners will assume this is adequate protection to proceed with a construction project. That depends on your definition of adequate. Make no mistake, the importance of hiring a licensed, bonded and insured contractor cannot be understated, but be aware of the basic definitions of these terms and their limitations.
First, the hiring of a licensed contractor should give piece of mind that your contractor has a certain level of competency. However, make sure you verify that license with the Department of Business and Professional Regulation’s website, as some licenses may have expired. Other background information is also available from the DBPR, such as how long this license has existed, and whether license complaints have been filed against them.
Next, what really is a bonded contractor? It depends on the type of bond. A bond is essentially an insurance policy guaranteeing completion of the contractor’s work. As an owner you should discuss the specific types of bonding protection offered by your contractor. A payment bond can exempt an owner’s property from liens and ensure proper payments to subcontractors in compliance with the law, where a performance bond guarantees completion (performance) of the project in the event of a contractor default.
Finally, an "insured" contractor likely only means your contractor carries a liability policy, often known as a Commercial General Liability (CGL) policy. While this type of policy is crucial for insuring against damages to injured persons or damaged property during an unfortunate occurrence in construction, it does not act as protection coverage to complete the actual work if the contractor does not. A contractor’s work is generally excluded as coverage under a CGL policy, but it is possible and recommended to negotiate other supplements to the coverage (additional endorsements) before a project begins, which may protect an owner in a number of ways.
In the end, an ounce of protection is worth a pound of cure, so before entering into any construction agreement an owner should be sure to fully read and understand any and all construction agreements and know your rights related to a construction project.