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I have a nightclub owner in California that I've had in a vacant building GL policy for the last several months pre-renovation. He's actually a lessee so I use the term "owner" loosely. We had a plan mapped out to insure the vacant building, building undergoing renovations, nightclub, etc. Unfortunately, he's decided he wants to do things his way.

With the options we had providing coverage with the ongoing renovations, the carriers required that he hire a licensed General Contractor to oversee the project. Well, the nightclub owner has decided to use a friend of a friend, who is a GC licensed in Massachusetts - his license in not reciprocal in California (not valid). Despite the fact that the friend is not licensed in CA, they insist on using him anyway running the project as an "owner build-out." Problem is I can't find anybody to provide liability coverage for the project without a CA licensed GC.

Project should last about 6 months at a cost of $1.2 Million. All renovations are interior, non-structural.

Maybe I’m overlooking something here…any suggestions on how I should approach this risk?

Your hurdle is that the project will not have a licensed GC. I don't have a good solution for you, except to try and convince them that the project would have to be run by a LIcensed GC. For a renovation this large, i would think there would be building permits issued, which would require a LIcensed contractor.

I think you may be out of gas on this one.

Is your client aware of the ramifications of not having a CA state licensed GC? And then there is the issue of permits.
How will the GC handle this? Is there any way that the out-of-state GC is able to get a temporary license in CA? What if this GC takes off during the construction period and leaves your client hanging? I see nothing but a can of worms here. I just finished writing a COC and Builder's Risk for a $10M project for a CA licensed GC which in itself had a long list of issues themselves....I don't think that the commission is even worth the trouble that this risk may give you. You are going to have to convice your client that LEGALLY, he must have a CA licensed GC. There is no way of getting around that.

Two different issues:

What is legal and what is wise. (Both from an underwriters perspective and from the "owners" perspective)

Is what this person doing wise? - Does not sound like it.

Is it legal? Probably. If this out of state GC comes here and is an employee of the "owner" of the property, then no license is required. This person is simply acting as an employee and not as an GC.

An owner of a property can act as his own GC and perform construction on his own property, hire subcontractors and pull permits all day long - no contractors license needed - happens every day here in California. I have to believe they can get coverage, unless they are all running naked? Some of them are perhaps going naked, but at least some of them have to know enough to get coverage, and must be able to do so.

I'm sorry, but I have to disagree with Eric's post.

In California, in order to do any type of constructuioin work, you must be licensed by the State. Rithout hiring a licensed contractor in the State in which he is performing the work, your client has no recourse if the contractor flakes out or is not aware of the codes in the State of California. Now, when it comes time for the inspector to come out to inspect the
work being done, the contractor will have to show his state license. If he can't, then you are going to bet your bottom dollar that the State will make him stop working and then it's going to cost your client more in fines and delays.

Being licensed in another State deos not give this contractor any benefits for doing buisness here in California. I know your client is trying to cuts corners, however, it really isn't in his best interest to hire an unlicensed contractor.

Yes, unlicensed contractors are hired all the time, but that doesn't make it legal. It may just end up costing your client more in the long run.

I am sure he can find a good licensed contractor locally. The way the economy is now, he could probably have a bidding war going on and may even cost him less than this out of state contractor.

I agree with all the comments that a GC is needed. The following information form the California State License Board (http://www.cslb.ca.gov/GeneralInformation/Library/Laws/)

Who must be licensed as a contractor?

All businesses or individuals who construct or alter, or offer to construct or alter, any building, highway, road, parking facility, railroad, excavation, or other structure in California must be licensed by the California Contractors State License Board (CSLB) if the total cost (labor and materials) of one or more contracts on the project is $500 or more. Contractors, including subcontractors, specialty contractors, and persons engaged in the business of home improvement (with the exception of joint ventures and projects involving federal funding) must be licensed before submitting bids. Licenses may be issued to individuals, partnerships, corporations, or joint ventures. The CSLB does not issue licenses to Limited Liability Companies (LLCs).


Does California recognize contractors’ licenses issued by other states or countries?

No. However, California does have reciprocal agreements with some states that recognize the experience qualifications for certain trades. It is only after the Registrar of Contractors has entered into a reciprocal agreement with the other state and under certain conditions that the Registrar may waive the written trade examination for a contractor licensed in another state. Applicants must still qualify by taking and passing the Law and Business Examination. If you have trade experience or a contractor’s license issued by another state or country and you want to contract for work in ’’’’California’’, this experience may be acceptable. In any case, you must apply for and be issued a license by the California Contractors State License Board.


What happens if I contract without a license?

A contractor’s license is not necessary as long as you don’t advertise yourself as a licensed contractor and never contract for jobs costing $500 or more, including labor and materials.

The Contractors State License Board has established statewide investigative teams that focus on unlicensed contractors and the underground economy. These units conduct stings and sweeps to curtail illegal contracting activities. These stings and sweeps are routinely publicized to ensure maximum consumer education.

Contracting without a license is usually a misdemeanor. Unlicensed contractors face potential sentences of up to six months in jail and/or a $500 fine, and potential administrative fines of $200 to $15,000. Subsequent violations increase criminal penalties. However, felony charges may be filed against those who contract without a license for any project that is covered by a state of emergency or disaster proclaimed by the Governor or the President of the United States Felony convictions may result in a state prison term as specified by the court.

Thanks, Paladin, you beat me to it!

Actually, I think what Eric is saying may have some legs, although there is some grey area with respect to owner-controlled build-outs. My interpretation is that it may only be applicable to smaller residential type projects.

In my scenario, the out-of-state GC does not have a hand in the hammer & nails construction, he is simply overseeing the project - procurement of materials, hiring/managing subs, etc. They intend to hire insured sub-contractors and ride their policies as additional insureds.

That said, my insured is required to carry a CGL policy per his lease (OCP would probably suffice) - however, if he insists on operating as contemplated, it looks as if there's not a policy out there for him, correct? Initially, as inefficient as it may be, I thought an OCIP/Wrap may work, but looks like they want a single licensed GC handling the project to write the risk.

I'm thinking the city rejects the permits without a GC and forces their hand...problem solved.