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New Yorkers Wanting to Renovate Should Alert Their Insurance Broker

Posted on December 29, 2010

Insurers Could Assess Penalty if Contractor Causes Damage

We’re starting to hear about a problem that could cost you money if you’re renovating your house, condo or co-op apartment. It’s called the “penalty deductible” and it kicks in if your contractor damages something in your place — breaks a pipe and floods your place, say, or starts a fire — and you haven’t notified your insurance broker about the renovations.

This is tricky because alerting your insurance company is rarely at the top of the list when planning major work, such as knocking down a wall or tackling a complete kitchen overhaul. (You don’t have to worry if you’re just repainting.) When you think about it, such a precaution does make sense. At a minimum, your contractor should provide proof of insurance, including general liability and worker’s compensation, before work begins. Also, make sure you’re added to the “additional insured” list on his general liability policy.

But some contractors have no coverage or flimsy, low-coverage policies that may not fully protect you if a worker damages something in your home. In such cases, your homeowner’s policy would have to cover whatever the contractor’s policy doesn’t. If the damage is bad enough, that could mean a claim of hundreds of thousands of dollars on your insurance.

Insurers don’t like it when they field a claim resulting from work they didn’t know was happening. To address this, some insurers have taken to raising deductibles, sometimes substantially, when you haven’t notified them about renovations under way. It’s a penalty on top of the higher premiums you’d pay after a high-cost claim.

The solution is pretty simple. An e-mail or phone call to your broker would suffice. Your carrier will schedule a safety inspection to make sure the contractor is working with the appropriate safeguards: fire extinguishers, no obvious fire hazards and up-to-date equipment. Most importantly, your insurer will confirm the contractor has meaningful coverage of his own so you don’t take a hit on your policy if something happens. This minor hassle on the front end can save you money and headaches later. And the inspection service is usually free, though if the renovations will seriously boost the home’s value, most carriers will want to raise your coverage amount and premium accordingly.

At Gotham Brokerage Co., Inc., we want to make sure you’re covered, especially when you’re dealing with something as potentially hazardous as renovation work in your home. Call us to talk about the coverage you need, and we’ll be happy to work with you and your contractor to make sure you don’t have to worry in case of an accident.

Barry Frost, Vice President, Gotham Brokerage Co., Inc.