Two common lawsuits in remodeling are for breach of contract and negligence in the performance of services. Negligence suits arise from damages sustained due to the contractor's failure to perform according to known standards in their field. There must also be a close relationship between negligent acts and the damage they cause. The financial consequences of such suits, including the cost of defending them, can be severe.

For this reason, it is worthwhile to investigate errors and omissions (E&O) liability insurance. E&O insurance covers the situations that result when a remodeler, a consultant, or another professional makes a mistake. E&O coverage is usually separate from general liability insurance and requires and carries a separate policy and premium.

Almost any type of protection may be self-insured — even E&O — although self-insurance is less viable in areas where insurance coverage is tied to licensing or bonding. You may be able to self-insure to a certain extent by purchasing policies that have higher deductibles. —Mark Battersby is a tax and financial writer and lecturer based in Philadelphia.