Remodeling projects raise new insurance issues for homeowners

Editor's note: David Myers is on vacation. This column repeats some previously published questions from readers and his responses that are still relevant today.

A homeowner who remodels can be held financially responsible if a worker gets hurt, even if the contractor has a workers' compensation insurance policy.

Q. You suggested that a homeowner who was planning a big remodeling project might need to increase his liability insurance in case the general contractor, or one of the subcontractors, gets hurt while working on the property. The general contractor we've hired to remodel our own home has his own workers' compensation insurance. Wouldn't his policy cover any on-the-job injuries to workers?

A. It's risky for homeowners to assume a contractor's workers' compensation policy will protect the homeowner from financial responsibility if someone is injured during a remodel.

Workers comp pays for medical and rehabilitation expenses, and sometimes lost wages, if a worker suffers an on-the-job injury. Many contractors don't carry "workers comp" coverage at all, so an injured worker can often sue the homeowner if the contractor doesn't have adequate insurance.

Even if a contractor claims to have good coverage, the homeowner should ask for a copy of the policy and then contact the insurer to check that it's up-to-date. It's also important to realize that the policy probably only covers the contractor's full-time employees - which means part-time subcontractors who might be involved in the project can still sue the property owner if they don't have workers comp coverage of their own.

Many workers comp insurers are also getting tougher on paying claims. For example, an insurance company today might still quickly pay for a worker who falls off the roof and breaks a leg - but might deny a claim and suggest the worker file a claim against the homeowner if the injury was caused after tripping over a skateboard that the owner's child carelessly left on the front sidewalk.

Considering all these issues, I will give you the same advice I provided the earlier reader: Contact your own insurer before, not after, your remodeling job begins.

Q. I own a duplex, and I rented one of the units to a young couple who wrote their $2,000 security deposit to me out of their joint account. The couple recently split up and moved out. The man wants me to send the $2,000 refund directly to him at his new address, but the woman wants me to send the $2,000 to her. Should I just send $1,000 to him and the other $1,000 to her?

A. Sending each one a check for $1,000 might seem like a good idea, but it really isn't, because each person apparently feels entitled to the full $2,000. If you arbitrarily decide to mail a $1,000 check to the man and another $1,000 check to the woman, you'd risk being dragged into their squabble and might even wind up in court.

A better alternative would be to write a $2,000 check, but make it payable to both of them. Both of their signatures would be required to cash it, which would force them to work out some sort of arrangement on their own while also helping to keep you out of their personal financial affairs.

Arrange a time when you can meet with them together so you can present the check after each one signs a receipt stating that the full deposit has been returned.

Q. I lost a court decision in 2010 but did not pay the judgment immediately, so the woman who sued me filed a lien against my home in 2011. I paid her the full amount last summer and she removed the lien, but it still appears on my credit report. The credit bureau won't take it off, which is hurting my credit score and making it more difficult to refinance my mortgage. What can I do?

A. Your letter states the lien was recorded in 2011 after you failed to promptly pay a court-ordered debt. Even though you finally paid it last year, the lien itself will remain on your credit report for seven years from the date it was filed.

Because the lien was a bona fide debt, the credit bureau was correct in refusing to erase it from your record. However, your report should also include a notation that the lien was released after the debt was paid in full.

Take another look at your report to see if it includes such a notation. If it doesn't, contact the bureau again to see how the information can be updated. I'm sure the bureau will be happy to help, provided that you can supply a copy of the lien release or other basic documentation that proves that the past-due debt has now been paid.

The bottom line here is the lien will stay on your record until 2018, which will hurt your overall credit score. You're the only person who can limit the damage (and get a better refinancing deal) by making sure your credit report also includes a note that says the judgment lien has been repaid.

Other homeowners seeking to refinance before rates surge higher can find several other money-saving tips, plus an easy work sheet to calculate their savings, in our "Refinancing the Right Way" booklet. For a copy, send $4 and a self-addressed, stamped envelope to David Myers/REFI, P.O. Box 2960, Culver City, CA 90231-2960. Send questions to that same address and we'll try to respond in a future column.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2015, Cowles Syndicate Inc.