Property owner acting as their own general contractor to build a home

When a property owner acts as a General Contractor (GC) for any home other than his primary residence, he is subject to all of the same insurance requirements as a person “in the business” of building new homes. Insurance for General Contractors is written contemplating on-going construction. The minimum premiums are usually relatively high ($10,000 and up) so that a single project may not be cost effective to the property owner. That coupled with the need to carry general liability insurance for the next 10 years (statute of repose) to cover the long-term exposure makes the ultimate cost of insurance in the $100,000 range. Anyone who is not willing to accept this responsibility SHOULD NOT act as their own general contractor. They should discuss these issues with their Attorney. If they plan to protect personal assets (without the use of insurance) by means of Corporation, Partnership or LLC, again they need to seek competent legal advice.

The general contractor has final and overall responsibility for job site safety and the selection of competent, licensed and insured subcontractors together with providing a ten-year guarantee as specified by the State of New Jersey (the new home warranty).

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When acting as a general contractor the property owner is also responsible for all workers on the jobsite (this includes subcontractors and their employees). Therefore, he must obtain workers compensation coverage. The cost of this insurance depends on:

Direct payroll (including casual employees).

Cost of completely uninsured subs and partially uninsured subs.

Evidence of Workers Compensation insurance furnished to the GC.

Inclusion or exclusion of the owner / principals of the subcontractor, if not a corporation (partially uninsured sub).

The GC is charged with obtaining certificates of Workers Compensation insurance from each subcontractor, showing coverage not only for the employees but also for the business owner. You need experience to properly evaluate the certificates.

If the subcontractor has purchased workers compensation insurance to cover his employees but has not included himself for coverage, then the GC's workers compensation insurance company must consider that subcontractor as uninsured and charge a premium just as if he were your employee. The reason for this is that an injured, uninsured subcontractor / owner IS eligible for benefits under the GC's workers compensation policy. The owner / GC cannot shed himself of this exposure as the workers compensation court demands coverage. There are a few exceptions to this rating rule. Any owner that attempts to “skirt” this rule needs a deep understanding of the New Jersey Workers Compensation Rating and Inspection Bureau's rules governing the collection of premium for uninsured persons on the jobsite.

In addition to the cost of General Liability Insurance, the workers compensation insurance can cost as much as 13% of the full subcontract cost.

An injured employee of a subcontractor may be able to collect under BOTH workers compensation and General Liability of the GC.

The homeowner will also need Builders risk insurance, which is simply a special form of property coverage. This risk can also be covered by a traditional fire and hazard policy. Once the construction has started, most insurance companies will not write either type of policy. These policies often contain a 100% co-insurance clause which means that the building must be insured for it's completed value from day one of the policy, if not, the insured suffers a penalty at loss time.

The homeowner should also consider flood insurance if they are in any flood zone.

For these reasons, owners acting as general contractors need to be fully aware of the pitfalls of insurance before they embark on a construction project acting as the general contractor. In our opinion, if insurance is written properly, it is unlikely that the owner, acting as his own General Contractor can justify the added cost of PROPER insurance when compared to the expense of hiring a legitimate and fully insured General Contractor.

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This outline is offered as a general description of the kinds of insurance that can be included in an insurance program. It is not intended to replace a comprehensive and personalized insurance recommendation, which can only be offered after a through analysis of particular individuals or businesses operations.