Contractor Dispute Letter
Contractor License Bonds and Insurance: How to File Claims for Compensation
Licensed contractors carry bonds and insurance that can compensate you when work goes wrong. Learn how to identify coverage, file claims, and recover money without going to court.
Licensed contractors are required to carry two types of financial protection you can access when work goes wrong: a surety bond and general liability insurance. Many homeowners don't know these exist or how to access them. Filing a claim against a contractor's bond or insurance can be faster and easier than going to court — and it doesn't require the contractor's cooperation.
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The Contractor License Bond: What It Is and Who It Protects
A contractor license bond (also called a surety bond) is a three-party contract:
- Principal: The contractor who purchases the bond
- Obligee: The state licensing authority that requires the bond
- Surety: The insurance company that issues the bond
What the bond covers: Financial loss resulting from the contractor's failure to comply with licensing laws, including:
- Non-performance (taking payment and not doing the work)
- Defective workmanship (doing the work poorly)
- Code violations
- Non-payment of subcontractors or suppliers (in some cases)
What the bond doesn't cover: Personal injury, consequential damages, or losses covered by other insurance. The bond is not the same as the contractor's liability insurance.
Bond amounts by state (examples):
- California: $15,000 (general contractor license bond)
- Texas: $10,000 (contractor must be registered, not licensed in all cases)
- Nevada: $1,000–$50,000 depending on license classification
- Florida: Varies by county and license type
For large projects, the bond limit may be much less than your loss — the bond is a minimum financial floor, not comprehensive protection.
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How to Find the Contractor's Bond
Step 1: Look up the contractor's license through the state licensing board
Step 2: The license record typically shows:
- Bond carrier name
- Bond number
- Bond amount
- Bond expiration date
Step 3: Contact the bond carrier directly. Surety companies that issue contractor bonds are typically major insurance companies (Travelers, Liberty Mutual, Zurich, etc.)
If the bond has expired: Bond lapse can itself be a licensing violation. Report to the licensing board AND look for any prior active bond. Some states require a 'tail' period where the old bond still covers incidents that occurred during the bond period.
California note: The CSLB maintains a public searchable database showing bond information for all licensed contractors. This is searchable at cslb.ca.gov.
Filing a Claim Against the Contractor's Bond
Bond claims follow a specific process:
Step 1 — Gather documentation:
- Your contract
- Payment records
- Documentation of non-performance or deficient work
- Independent estimates of completion/repair costs
- Any demand letters you sent
- Any licensing board complaint number
Step 2 — Contact the surety company: File a formal claim using their claim form. Call the surety and ask for their claims department for contractor license bonds.
Step 3 — Provide documentation: Submit your claim form and supporting documentation. Be specific about the dollar amount claimed and the basis for it.
Step 4 — Surety investigation: The surety will investigate by contacting the contractor and reviewing documentation. They have 30–60 days typically to evaluate the claim.
Step 5 — Resolution: The surety may pay your claim (up to the bond limit), deny the claim (with explanation), or offer a partial payment. If denied, you can appeal the denial or pursue the contractor directly.
Note: The surety pays your claim and then seeks reimbursement from the contractor. This creates additional pressure on the contractor to make things right.
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General Liability Insurance: Different Purpose, Different Claims
While the license bond covers non-performance, general liability (GL) insurance covers property damage and bodily injury caused by the contractor's work.
What GL covers:
- Property damage to your home during construction (water damage from a broken pipe, fire from welding, damaged flooring from equipment)
- Injury to third parties on the job site
- Damage to adjacent properties
What GL typically doesn't cover:
- Poor workmanship itself (faulty work exclusion is common)
- The cost to redo defective work
- Economic losses from non-performance
How to file a GL claim:
- Ask the contractor for their insurance certificate (a 'certificate of insurance' or COI showing the carrier and policy number)
- Contact the insurance carrier and report the claim
- If the contractor won't provide insurance information, check with your state licensing board — it's often public
Your homeowner's insurance: If the contractor caused damage, your homeowner's insurance may also cover it (minus your deductible). File with your insurer and let them pursue subrogation against the contractor's GL insurer.
Workers' Compensation: The Homeowner's Exposure
This is a critical point most homeowners don't know: if you hire an uninsured contractor and their worker is injured on your property, YOU may be liable as the effective 'employer.'
Why this happens: Workers' compensation insurance is mandatory for employers. When a contractor doesn't carry it, and one of their workers is injured, the law may treat the homeowner as the 'statutory employer' responsible for workers' comp coverage.
How to protect yourself:
- Always verify workers' comp coverage before hiring (request a certificate of insurance showing WC coverage)
- Confirm the policy is active — call the insurer and verify if in doubt
- Licensed contractors are required to maintain WC or be licensed as an exempt sole proprietor (who has no employees)
If a worker is injured on your property and the contractor has no WC: Contact your homeowner's insurance immediately. Some homeowner's policies provide limited coverage for this scenario; most don't. This is a situation requiring immediate legal advice.
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Frequently Asked Questions
Quick answers to the most common questions on this topic.
How much can I recover from a contractor's surety bond?
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Up to the bond limit, which varies by state — typically $5,000–$25,000. The surety pays the lesser of your documented loss or the bond limit. If your loss exceeds the bond limit, you pursue the contractor directly for the excess.
Can I file both a bond claim and sue the contractor?
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Yes. These are independent remedies and you can pursue both simultaneously. The bond claim provides a faster recovery path while a lawsuit addresses the full amount if the bond doesn't cover your total loss.
How long does a bond claim take?
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Typically 30–90 days for a straightforward claim. Complex disputes or cases requiring extensive investigation can take 6 months or more. Disputes about coverage or amounts may require litigation against the surety.
What if the contractor's bond is canceled or expired?
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Report the lapse to the licensing board immediately. Some states require bond continuity — the insurer must give advance notice of cancellation. Claims for incidents that occurred during the active bond period may still be covered even if the bond later lapsed.
Is a contractor's liability insurance the same as a bond?
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No. A surety bond compensates for non-performance and licensing violations. Liability insurance covers property damage and bodily injury. Most licensed contractors have both. They serve different purposes and the claims processes are separate.