We often see the credentials “licensed, bonded and insured” proudly attached to a company name. But what does this mean? How are they different? And why are they all important?
If a contractor is bonded, it means it’s looking out for its customers. Period. Because it means the contractor has secured a surety bond. This bond involves three parties: the surety (guarantor), the contractor, and the person hiring the contractor. The purpose of bonding is to protect you, the customer. How?
Let’s say you hire Company X to trim that stately oak tree because its branches have grown too close to your home and could cause damage. But Company X flies the coop and never completes the work. Or the company does shoddy work or damages your property in some way while performing the work. If Company X is bonded, this guarantees that you, the customer, will be reimbursed for any money you have to spend to correct the problem(s). It may also cover theft on the part of workers. So bonding gives you, the customer, financial protection and ensures that, in the end, the work will be completed properly and completely; the reimbursement allows you to hire another contractor to complete the work if needed.
The surety will pay you the reimbursement, but since a security bond is a form of credit, the original contractor will eventually have to face the music. They will have to cough up the cash to pay for their own poor workmanship and irresponsibility.
Contractor’s insurance is a bit of a different animal: it is a two-party contract between the insured (the contractor) and the insurance company. It protects the contractor from financial loss. It comes in two forms: liability insurance and worker’s compensation. Liability insurance covers damage to your property caused by the contractor. (Liability insurance usually doesn’t cover repairing shoddy work. That’s why a bond, mentioned above, is a can’t-do-without-it commodity.) Worker’s compensation covers wages and medical expenses of workers who are injured on the job. It also includes death benefits if a worker is killed on the job. Why should you only hire a company that has proper insurance?
How about this: a couple in California hired a company to trim their tree. But they made a costly blunder: they didn’t check to see if the contractor was insured and licensed. It wasn’t. The untrained tree trimmer touched a power line with his trimming pole and was electrocuted and killed. A horrible tragedy. What’s more, the courts determined that, because the couple was legally considered the employee’s agent, they were responsible. They argued that they didn’t know the company was unlicensed and uninsured. Didn’t matter. Then they tried to get worker’s compensation to cover the lawsuit. They lost. In the end, they were charged with wrongful death.
Sound unfair? Maybe. But it’s the way the laws work in some states. So what’s the take-away here? This: If you hire an unlicensed or uninsured landscaper or tree trimmer, you are really going out on a limb. You are assuming an enormous risk. You may be responsible for code violations, injuries, or property damage, even if you are only sitting in your living room drinking a root beer and watching Seinfeld reruns. Considering the fact that tree trimming is risky business – there are beastly things like height, power lines, axes, chain saws – the likelihood of a mishap is higher than in most other work-a-day jobs.
Some consider commercial auto insurance a third form of necessary insurance. If an accident involving the contractor’s vehicle occurs on your property – one that causes personal injury or damage to property – the contractor’s auto insurance will cover it.
First of all, in many states and localities, if a company is not licensed, it cannot be insured or bonded. So if you’re the type that would consider hurling yourself out of an airplane without a parachute, you might be okay hiring an unlicensed contractor; in either case there is nothing in place to protect you. Additionally, a license means that the contractor is obligated to follow state and local laws and regulations, and probably means that the contractor has received some kind of official, professional training. That’s really important when it comes to landscaping and tree trimming; tree care is, in fact, one of the most dangerous professions in the U.S. Careless, untrained tree trimmers can injure themselves, others, and cause extensive property damage, not to mention hacking a poor tree to near-death.
Convinced that you should only hire a licensed, insured, bonded contractor? Good.
How Do I Know that The Provider is Indeed, Bonded, Licensed, and Insured?
Just ask? Well, that’s a start. But it shouldn’t be the end. After all, unscrupulous contractors will likely try to sell you a fish story about their qualifications. Don’t be shy; you are completely within your rights to ask to see bonds and certificates of insurance. A good contractor will expect this. But beware! Crooked contractors have been known to counterfeit these documents.
- Here is where you need to do a little homework. To find a legitimately bonded and insured contractor, you can check the Better Business Bureau (BBB) website. When a business applies to become an accredited BBB business, it must provide proof that it meets all of the bonding, licensing, and insurance requirements in the area in which it conducts business. Most states have official websites which provide this information as well.
- One of the most powerful tools you have in your toolbox: ask for references. Yes, you may have to spend some time making phone calls or actually looking at the landscaper’s previous work, but the time spent is well worth it. If a good number of previous customers were happy with the contractor’s work, you can feel comfortable that they’ll do a good job for you.
So finding a good, reliable, licensed, bonded, and insured landscaper or tree trimmer is a three-pronged attack: 1) Ask for bond numbers and certificates of insurance, 2) check the BBB and state websites for legitimate contractors, and 3) ask for and verify references.
Being penny wise but pound foolish – hiring a cut-rate or amateur landscaper or tree trimmer that isn’t properly licensed or insured – may save you money up front, but could cost you big time in the end. Many have chosen the cheaper road and had a contractor nightmare on their hands.