Contractor Says He Doesn’t Need Workers’ Comp Insurance
A California homeowner recently found out that their contractor, who’s midway through a $180,000 condo remodel, plans to cancel his workers’ compensation insurance—claiming he doesn’t need it since his crew is made up of family members.
His reasoning?
“They’re my dad and cousin. We won’t sue each other.”
He’s licensed. He has general liability coverage. He uses subcontractors for electrical work. But he doesn’t want to continue paying for workers’ comp.
So, here’s the question:
Can a contractor legally drop workers' compensation insurance in California—and what does that mean for you as the homeowner if someone gets hurt on the job?
Let’s break it down.
Workers’ Comp vs. General Liability: What’s the Difference?
First, understand the distinction:
- General Liability Insurance covers property damage or injury to third parties (like you or your guests), but not the contractor’s employees.
- Workers’ Compensation Insurance specifically covers job-related injuries to workers—including medical costs, lost wages, and rehab.
If a worker gets injured on your property and the contractor doesn’t have workers' comp, that injured worker might have no direct coverage for their injury—and your homeowners insurance could be next in line.
Can a Contractor Opt Out in California?
Yes—but only under certain conditions.
In California, a sole proprietor with no employees can legally waive workers' compensation insurance. If they only work with family members (like a dad or cousin) or independent subcontractors, they can also file for exemption.
BUT—and this is critical—that doesn’t make you immune from liability.
- If a worker isn’t properly classified
- If a family member decides to sue after an injury (and yes, it happens)
- If a subcontractor doesn’t carry their own insurance
—you, the homeowner, could be on the hook.
What If Someone Gets Hurt?
If someone gets injured during the remodel and there’s no workers’ comp coverage in place:
- They can sue the contractor (limited protection if it’s family)
- They may attempt to sue you as the property owner
- Your homeowners policy might deny the claim if contractors are involved without proper coverage
- You could face out-of-pocket costs for legal fees, settlements, or medical expenses
Red Flags You Shouldn’t Ignore
This homeowner did the right thing by asking questions—and so should you. A few warning signs in this situation:
- A $180K project with no active workers’ comp? That’s unusual.
- Claims that “we won’t sue each other” are not a legal defense
- If the contractor uses any workers outside of immediate family, he’s required to have coverage
- If any subcontractors lack coverage, that also creates risk
As one commenter put it:
“If he can’t afford workers comp insurance on a $180k job, there’s a bigger problem.”
What You Should Do as the Homeowner
This is your home—and your financial liability. Here's how to protect yourself:
Ask for a Certificate of Insurance (COI)
Don’t just take their word for it. Get a copy of their workers’ comp and general liability coverage.
Verify Every Subcontractor
Make sure any subs (electrical, plumbing, HVAC) have their own insurance. Get COIs from them, too.
Request to Be Added as an Additional Insured
This puts your name on their insurance policies, giving you added legal protection if something goes wrong.
Talk to Your Homeowners Insurance Agent
Ask about adding a rider or endorsement that covers contractor-related injuries on your property. It’s a small cost for major peace of mind.
Just Because It's Legal Doesn’t Mean It’s Smart
Yes, a contractor may be able to drop workers’ comp coverage under certain exemptions. But in a high-cost, high-liability state like California, that’s a risky move—for you as much as them.
Your name is on the property. Your money is funding the project. Your exposure matters.
Want to Know if You’re Covered?
As a Farmers Insurance agency based in Ontario, CA, we help California homeowners avoid unexpected liability during construction, renovations, or repairs.
Whether you're remodeling your kitchen or building a second story—we’ll review your current policy and show you exactly what coverage gaps to watch out for.