Contractor Bond FAQ

Who does a contractor bond protect?

The contractor license bond protects the contractor’s clients, employees, and vendors, but not the contractor themselves. It is required to have an active contractor license and contract agent in California.

What happens if a claim is filed against a bond?

Claims may be filed if the contractor defaults the job, does not pay vendors, subcontractors or employees. When a claim is filed, it will first be investigated by the Contractors State License Board. In the case a claim is proved just, the surety company will pay for the claim and then the contractor is responsible to reimburse them in full, and potentially pay any legal fees. 

Who are the parties involved in a contractor bond?

The principal (contractor), obligee (Contractor State License Board), and surety (Insurance/Surety Agency). The surety agrees to pay the obligee if principal defaults. The surety will then seek reimbursement from the principal.

How do contractors deal with a business name and/or address change?

The California State License Board requires notice of any business-related changes within 90 days of said change, which can be done by following this link: http://www.cslb.ca.gov/Contractors/Maintain_License/Change_Name_Or_Address.aspx

General Liability FAQ

Is general liability required?

Although it is not required by law for contractors to carry a general liability policy, many property managers and government agencies will require contractors to carry the standard $1 mil occurrence/$2 mil aggregate policy. This means the insurance will cover up to one million dollars on any one claim, with a two-million-dollar total limit for the duration of the policy (one year). The CSLB highly recommends that all contractors carry general liability insurance. However, it is required for contractors organized as LLC’s.

What does/doesn’t a typical policy cover?

A general liability policy is meant to protect the contractor against claims for bodily injury (BI) and property damage (PD) arising. The policy also covers any advertising and slander (PI), which is rare.

General Liability does not cover the actual work performed on the contractor or their personal property, tools and materials or bodily injury to the contractor or their employees.

What are the differences between general liability and workers compensation insurance?

General liability will not cover employee injuries while workers compensation is intended for just that coverage. Workers compensation covers employees for medical expenses resulting from work place injuries, rehabilitation, lost wages and death.