THE ALMOST MEANINGLESS ASSURANCE
OF BEING LICENSED, BONDED AND INSURED
As an Indianapolis construction attorney, you need to be able to separate the truth from the false. The requirements to work as a general contractor within the State of Indiana are extremely minimal to non-existent, depending upon the locality within which the work is being performed. Most larger municipalities require contractors to secure licenses and be bonded. Many do not. Plumbers, however, are required by law to have a statewide license. There is no state-wide requirement for electricians to be licensed, but each county requires some licensing for electricians to secure permits. The entire system is so confusing, the consumer needs a “team roster” to track who is authorized to do what.
To make matters worse, contractors often advertise they are “Licensed, Bonded, and Insured”, giving their prospective cliental the impression they have somehow come complete with government endorsements and insurance that will cover any shortfalls in the contractor’s work. The sad truth is, those words mean very little to customer in the wake of a construction project gone wrong. That is because almost anyone can get licensed, bonded, and insured, and those protections give almost no protection to the consumer.
Fortunately, the licensure process for electricians and plumbers is quite rigorous. Electricians must have four years of experience under a licensed plumber and must pass a state exam. Electricians are required to pass a written exam and in some counties, additional requirements are mandated. Similar requirements must be met for heating and air conditioning contractors. A general contractor, by contrast, is generally required to attend a two-day seminar, secure a bond, and provide proof of worker’s compensation insurance and some level of general liability insurance. If you have enough breath in you to fog a mirror, you can secure a general contractor’s license.
General contractors are generally expected to be knowledgeable about all other trades, but the licensure requirements do nothing to confirm that level of knowledge and expertise. Not even years of working construction would give potential customers a measure of a contractor’s technical knowledge about the proper way to wire a breaker box or vent a bathroom drain. General contractors may have a vast store of knowledge on a wide variety of construction related topics, or they may have none at all. The purpose of a general contractor’s license is to help insure the general contractors working within any municipality have secured a bond and insurance.
So, what exactly does the bond do for the consumer?
Not nearly what you might think it does. The bond is intended to ensure that work performed meets the municipalities building code requirements. If it doesn’t, then either the municipality or the customer, may file a claim under the bond and the company issuing the bond will be required to pay the cost of having another contractor bring any workmanship that is not compliant with the building code, back into compliance. The bond does not insure the work will be performed at a level of expertise that will be visually pleasing to the customer’s eye. It will not address any work that is not directly related to a code violation. There are other types of bonds, however, and contractors are sometimes required by the terms of their contracts to carry such bonds. A performance bond is one type of bond that is often required in commercial contracts, to help insure the completion of the project. However, that type of bond is not required by municipalities within the State of Indiana, and consumers should not assume that their contractor is carrying that type of bond, simply because the contractor states they are bonded.
Consumers who read the word insured, typically develop a false sense of security erroneously believing the contractor has secured insurance that will resolve any problems created by the contractor. While there are insurance policies that will in fact cover negligent workmanship, and errors and omissions, no such insurance is required by municipalities in Indiana. Cities and towns in Indiana, which do require insurance, generally require workers’ compensation insurance and general liability insurance. The first protects the employees of the contractor against job related injuries, and the second protects against general negligence on the part of a contractor that causes property damage or personal injury.
The take away is this: If you are a homeowner looking to hire a general contractor to build you a room addition and you see that they are licensed, bonded, and insured, understand at the outset of your business dealings, that those three words will provide you little or no protection against a contractor that disappears in the night with your money, or for failing to build according to the specifications in your contract, or for doing extraordinarily poor workmanship. At the end of the day, good references, solid evidence of completed jobs, and your own intuition will do more to protect you than the license, bond and insurance, they claim to have.
If your contractor isn’t performing as you reasonably expected, it may be time to call an experienced Indianapolis construction attorney and consult with them about your options.