BONDS, INSURANCE, AND LIENS
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Questions and Answers

Regarding home improvement contracts, when should a contractor disclose that they have general liability insurance?

  • In the contract (correct)
  • If the contractor has employees
  • If the contractor has subcontractors
  • If the project lasts more than 30 days

    • During a workers’ compensation annual audit, the company will be required to provide:

  • Jobsite addresses
  • Employees’ criminal records
  • Employees’ previous employers
  • Employees’ job classification working hours (correct)

    • Which bond guarantees that a contractor’s work will be free of material and workmanship defects for a specific time period?

  • Licensure bond
  • Maintenance bond (correct)
  • Performance bond
  • Satisfaction bond

    • How can a property owner release their property from a mechanics’ lien?

    <p>Post a lien release bond in the amount of 125% of the lien</p> Signup and view all the answers

    Paul, an employee, is working with his own tools and causes damage. Who is responsible for the damage?

    <p>Contractor employing Paul</p> Signup and view all the answers

    Homeowners have ____ days from the date of completion to file a “Notice of Completion”.

    <p>15</p> Signup and view all the answers

    If notice of completion or cessation has not been recorded, how many days does a subcontractor have to record their lien?

    <p>90 days after completing the work</p> Signup and view all the answers

    Which of the following is required in order to file a mechanics’ lien?

    <p>All of the above</p> Signup and view all the answers

    A mechanics’ lien must contain, among other things:

    <p>The legal description of the property</p> Signup and view all the answers

    A stop notice must be served by:

    <p>Registered or certified mail or personal delivery</p> Signup and view all the answers

    A material supplier has not been paid for insulating materials furnished to a subcontractor. The supplier’s mechanics’ lien must be recorded with:

    <p>The county recorder</p> Signup and view all the answers

    Which of the following is INCORRECT when obtaining workers’ compensation insurance?

    <p>Require employees to carry their own disability insurance</p> Signup and view all the answers

    Workers’ compensation insurance premiums:

    <p>Must be paid by the employer</p> Signup and view all the answers

    How can a contractor keep track of his subcontractor’s proof of insurance coverage during a two-year project?

    <p>Monitor the subcontractors’ continued proof of coverage</p> Signup and view all the answers

    In-home improvement contracts, the contractor must disclose which of the following?

    <p>The right to file a mechanics lien</p> Signup and view all the answers

    How will the client know that the contractor has lien rights?

    <p>A notice to the owner is included in the contract</p> Signup and view all the answers

    A lien is filed against an owner’s property. The owner believes that the lien is invalid. The owner may release the property from the lien by recording:

    <p>A bond for 1-1/4 times the lien claim</p> Signup and view all the answers

    The insurance provider should be selected on the______________.

    <p>Both A and B</p> Signup and view all the answers

    What is the main purpose of insurance?

    <p>To supplement the contractor’s risk management against accidents and theft by transferring the risk of loss from the business to a third party</p> Signup and view all the answers

    How many days does a subcontractor have to record a mechanics’ lien after a notice of cessation is recorded?

    <p>30 days</p> Signup and view all the answers

    What does "Named Peril" insurance cover?

    <p>Fire and lightning losses</p> Signup and view all the answers

    What is a Performance Bond?

    <p>This bond guarantees that the contractor will complete a contract within its time frame and conditions</p> Signup and view all the answers

    Which of the following statements is not true regarding a contractor’s bond?

    <p>A licensed corporation is required to obtain two separate bonds, for the corporation and its qualifying individual who owns 20% of the business</p> Signup and view all the answers

    What does the “occurrence basis” cover in liability insurance?

    <p>After the insurance policy has expired, the contractor is still covered</p> Signup and view all the answers

    What is the recommended practice if the customer cannot afford to pay for the job?

    <p>Offer the customer a reasonable extension until payment can be made</p> Signup and view all the answers

    A contractor installs a new ceiling fan in an existing residence. Soon after, the ceiling fan falls and damages the hardwood floor beneath. Which of the following statements is correct in this situation?

    <p>The hardwood floor will be covered by the contractor’s general liability insurance, but the ceiling fan will be the responsibility of the contractor</p> Signup and view all the answers

    Which of the following statements is not true regarding a stop notice?

    <p>A stop notice must be filed with the county recorder’s office in order to be valid.</p> Signup and view all the answers

    A “builder’s risk insurance” policy covers:

    <p>Hail storm damage</p> Signup and view all the answers

    You should pay your insurance premium ____________.

    <p>On or before the due date</p> Signup and view all the answers

    A plumbing contractor was performing soldering work when the house caught on fire. What type of insurance policy will cover damages?

    <p>General liability policy</p> Signup and view all the answers

    The amount of a stop notice bond must be:

    <p>1-1/4 times the amount claimed in the stop notice</p> Signup and view all the answers

    How many days does the contractor have to notify the registrar of their insurance carrier’s name and address after workers’ compensation has been issued?

    <p>90 days</p> Signup and view all the answers

    An independent contractor will carry their own workers’ compensation insurance and the prime contractor will:

    <p>Need workers comp only for their employees</p> Signup and view all the answers

    What is the average cost of payment, performance, or contract bond?

    <p>1-2%</p> Signup and view all the answers

    Which of the following lets subcontractors and suppliers establish a claim for payment when they are not paid for work completed?

    <p>Stop notice</p> Signup and view all the answers

    Which of the following is not required to give a Preliminary Notice?

    <p>A prime contractor on a private job that is not funded by a construction loan</p> Signup and view all the answers

    By the end of an employee’s first pay period, the employer must provide:

    <p>A written notice regarding worker’s compensation benefits</p> Signup and view all the answers

    What is the main purpose of Retainage/Retention?

    <p>To help the owner ensure completion of the project and provide protection against liens</p> Signup and view all the answers

    If a worker is injured on the job, and it is determined that the worker was under the influence of alcohol or drugs at the time of the accident, which of the following would be true?

    <p>The worker would not be covered by workers’ compensation</p> Signup and view all the answers

    Due to CSLB’s processing times, it is recommended for a contractor to renew the contractor’s license bond:

    <p>30 days before it expires</p> Signup and view all the answers

    Which of the following is NOT filed at the County Recorder’s Office?

    <p>Personal income tax</p> Signup and view all the answers

    When a notice of completion has been filed, the prime contractor has ____ days to record a lien.

    <p>60</p> Signup and view all the answers

    Which of the following will guarantee that a job will be completed properly and payment disbursed in a timely manner?

    <p>Contract bond</p> Signup and view all the answers

    Which of the following can a prime contractor utilize if they are not being paid for a job that has been completed?

    <p>Mechanics’ liens</p> Signup and view all the answers

    Where is the Mechanics’ Lien recorded?

    <p>County Recorder office</p> Signup and view all the answers

    Paul is a licensed contractor who is building an addition to a customer’s home. He subcontracts the plumbing work to ABC Plumbing Co. During the job, one of the ABC Plumbing employees is injured. If ABC Plumbing fails to cover its employees with a workers’ compensation insurance policy, and Paul did not check beforehand, which of the following would be true?

    <p>The injured employee may file a lawsuit against both Paul and ABC Plumbing.</p> Signup and view all the answers

    What information must be included in a stop notice?

    <p>The kind of labor, services, equipment, or materials furnished or agreed to be furnished</p> Signup and view all the answers

    What is a Payment Bond?

    <p>This bond is a guarantee to subcontractors and suppliers that they will be paid for their work and materials</p> Signup and view all the answers

    Which of the following parties cannot file a mechanics’ lien on a construction project?

    <p>A contractor working on public projects</p> Signup and view all the answers

    Which of the following is true regarding a preliminary notice?

    <p>It must be sent within 20 days after the subcontractor starts work</p> <p>It must be sent within 20 days after the subcontractor starts work</p> Signup and view all the answers

    How much time does a subcontractor have to record a mechanics’ lien after a notice of completion has been recorded?

    <p>30 days</p> Signup and view all the answers

    The type of bond that guarantees the completion of a project according to plans and specifications is called a:

    <p>Performance bond</p> Signup and view all the answers

    What is a mechanics lien?

    <p>It is a claim on a property</p> Signup and view all the answers

    Which is usually the least expensive method of dispute resolution?

    <p>Settlement</p> Signup and view all the answers

    What is the purpose of a Mechanics’ Lien?

    <p>It encumbers the owner's property as security until the bill is paid</p> Signup and view all the answers

    Which of the following insurance policies is considered an “extra policy” used for major claims?

    <p>Umbrella</p> Signup and view all the answers

    Unless a notice of credit has been recorded, a contractor must file a lien foreclosure suit within _____ days after recording a mechanics’ lien.

    <p>90</p> Signup and view all the answers

    What is the purpose of a lien?

    <p>To attach to the property to help suppliers and subcontractors collect money due</p> Signup and view all the answers

    A property or business policy covers:

    <p>Both A and B</p> Signup and view all the answers

    A contractor must report a valid workers’ compensation policy to the Contractors State License Board within:

    <p>90 days</p> Signup and view all the answers

    Of the following, who is NOT required to serve a preliminary notice prior to filing a lien?

    <p>Prime contractor</p> Signup and view all the answers

    Who is least affected by the Notice to Owner?

    <p>The lender</p> Signup and view all the answers

    Upon completion of a construction project, the owner decides not to pay for the work. If the contractor does not have lien rights of any kind, what should they do?

    <p>File a suit for breach of construction contract</p> Signup and view all the answers

    If the homeowner pays the contractor for their work, which of the following can still place a lien on the homeowner’s property?

    <p>All of the above</p> Signup and view all the answers

    Why would the prime contractor ask his/her sub for certificates of insurance?

    <p>The contractor may be held liable for anything not covered by the subcontractor</p> Signup and view all the answers

    If a subcontractor is filing a stop notice on a project funded by a construction lender, they must also post:

    <p>Stop notice bond in the amount of 125% of the amount of the stop notice</p> Signup and view all the answers

    To whom is the Preliminary Notice not sent?

    <p>The subcontractor</p> Signup and view all the answers

    How many days does the prime contractor have to record a mechanics’ lien after notice of completion is recorded?

    <p>60 days</p> Signup and view all the answers

    What is the penalty for a contractor for not having workers’ compensation?

    <p>$2000 per employee in non-compensable cases, and $10,000 for each employee in compensable cases</p> Signup and view all the answers

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