Sun Light & Power Company in Berkeley had a provision in its contract that ownership of materials didn't transfer to the homeowners until they paid for it. This helped the company preserve its right to repossession if equipment wasn't paid for. But it left owner Gary Gerber vulnerable if material were to be vandalized or stolen. When $150,000 worth of solar modules had to be left at a site for weeks before installation, Gerber had second thoughts about the contract language.
His insurance agent, Mark Leininger of NEK Insurance, advised Gerber to be aware of the language in a course of construction policy (typically in the name of the homeowner) or the similar type of policy known as builder's risk (written in the name of the contractor with the homeowner possibly included as a named insured), or homeowners' policy that says that materials are the responsibility of the contractor until “put to [their] intended use.” Says Leininger, most of whose clients are general contractors, you should have language in your contract with the homeowner that says something to the effect that “all materials exchange ownership to the homeowner upon delivery.” Nothing happened to Gerber's modules, but he did change the language in future contracts. While repossession is a good option, it's also extremely difficult to accomplish and would create bad blood.
To avoid sticky insurance situations, meet with homeowners before beginning a job and advise them to contact their insurers and discuss the following:
Enough coverage. “Everything starts with the limit of insurance,” says Leininger. “If the day before completion, lightning strikes and the building burns down and the homeowner's policy limit is not adequate to cover all costs, including reconstruction, the homeowner will find himself with a shortage of money available,” says Leininger.
Ordinance and law upgrades. Costs associated with these are not automatically covered under a homeowner's policy. With an old building, it might come as a complete surprise to the homeowner that the amount of insurance money available doesn't satisfy the costs, for example, of bringing everything up to code.
Course of construction policy. If a homeowner moves out during an extensive renovation, he or she will need to purchase this. It covers buildings and other structures being built, including building materials and equipment intended to become part of the building or structure.
With a COC, the general contractor benefits because he won't have to maintain a materials floater policy and pay extra premiums at jobsites; insurance integrity is preserved because he won't have a loss on his history. Say a homeowner doesn't lock the garage filled with newly delivered cabinets, and the cabinets are stolen. “From a security standpoint, the homeowner has the ability to exercise control. The contractor has little or no ability to secure the property,” Leininger says. In addition, the contractor will be able to invoice the homeowners to get paid for the materials because they've transferred ownership rather than waiting for a certain stage of completion.
Premises liability. This is a homeowner responsibility unless the contract delegates the responsibility to the general contractor. It's for the homeowner to have protection against someone coming onto the property and sustaining an injury due to the sole negligence of the owner.
The bottom line is that the remodeler and the homeowner need to work out these details before the project begins and get them into the contract.