Part of the thrill of a renovation is dreaming up a brand-new look for your home. The best part of the process is, of course, walking through the finished rooms and settling into your new space.
But that dream can quickly turn into a nightmare if any damage occurs during the process. Falling ladders, broken pipes, and scratches on the hardwood floor are all snafus that can delay the process and cost you serious dough. In these scenarios, who is responsible for the damage? Will your insurance cover it?
“A home insurance policy will cover damage to your home in most cases, even if it’s related to renovations,” says John Espenschied, owner of Insurance Brokers Group in Chesterfield, MO.
“Rewiring the electrical system, updating the plumbing, adding a room addition—all of these come with potential risk to the existing property.”
That’s good news; however, “in most cases” doesn’t guarantee you’re covered. Here’s what you need to know before you start that renovation project.
Where to find out what’s covered
For the details about your coverage, you’ll need to check your home insurance policy document. Your insurance company usually mails a physical copy every year, and it should also be available online when you log in to your account.
“Your policy document will outline what is covered, the applicable exclusions to be aware of, and any specific requirements pertaining to construction, renovations, and other situations where your home’s use or occupancy changes,” says Stefan Tirschler, product and underwriting manager at Square One Insurance Services, which serves the United States and Canada.
When you find your policy, refer to the “causes of loss” section, says Kevin Foley, CPA, CPCU at PFT&K Insurance Brokers in Freehold, NJ.
“The dwelling is usually covered for all risk of direct physical damage, unless one of the exclusions apply.”
Before the renovation starts
Don’t let a single wall be torn down until you’ve called your insurance company.
“You may need to update your policy, or buy extra coverage, if necessary, to extend coverage to the work,” Tirschler says. “If you’re renovating your bathroom and investing $15,000 into labor and materials, your home’s replacement cost should be adjusted to match this new cost.”
Without this pre-renovation step, the value of your improvements may be uninsured and, in this case, you would have to pay out of pocket for any repairs.
What’s covered during a renovation
Foley says that if the damage is not named in your insurance policy, then it’s not covered. So what is typically covered? Fires, explosions, water damage, and thefts.
“Renovations would be covered for the same perils as the rest of the dwelling coverage, as long as the policy is updated to do so,” says James Fleming of Country Financial in Bend, OR.
The same goes for any work performed inside the house.
“If the contractor caused a fire, broke a window, left a hole in the building, dropped a ladder on your dining room table, your insurance covers it,” says Foley.
What’s not covered
“If you don’t like the work, there’s no coverage for that,” says Foley. “If it’s really poor work and you need to have it done over, you won’t find coverage in your policy, but I would recommend filing a claim with your contractor’s general liability carrier.”
Tirschler agrees that damage caused by faulty workmanship is generally not covered by your policy.
“This is because home insurance policies are designed to cover sudden and accidental direct damage, not to provide a warranty for work performed by manufacturers and contractors.”
However, depending on the cause of the damage to your home, another option may come into play.
“If a contractor caused damage, most likely your home insurance company will pay for repairs quickly and then subrogate, or seek recovery of payment, from the contractor or their insurance company for damage,” says Espenschied.
Damage to your neighbor’s property
Let’s say that during the course of the project, your neighbor’s property accidentally sustains damage. Does your insurance cover that? Once again, it depends!
If you were negligent, for example for not removing a tree that you knew needed to be removed, your homeowner’s liability would cover you, according to Tim Surber, owner of Tim Surber State Farm Agency in Yakima WA.
But suppose your contractor causes the damage.
“Since the contractor was the cause of the damage, the contractor’s commercial insurance policy would be responsible for the neighbor’s home damage,” Espenschied explains.
Tirschler agrees that the contractor is responsible for compensating the neighbor.
“Your home insurance policy covers your own liability, not your contractor’s liability for accidental damage to others’ property.”
Your contractor should have a commercial general liability insurance policy to cover any accidents that may happen on the job.
“Request that your contractor have their insurance agent fax or email a copy of this insurance certificate directly to you, as confirmation that it is in force,” says Tirschler.
In fact, he says your home insurance provider may even request this certificate from you in advance of the renovations.
“To help protect yourself against negative circumstances, make sure your contractors are licensed, bonded, and insured,” Tirschler says. “Carefully review any guarantees or warranties they offer, to make sure you are satisfied with how they plan to stand behind their work.”