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1 Builders (Exam Review for Business Law) > Insurance, Bonds, and Liens (Overview) > Flashcards

Insurance, Bonds, and Liens (Overview) Flashcards

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1
Q

What type of insurance will protect the contractor for losses due to a fire on his construction project?

a: All Risk Builders insurance
b: General liability insurance
c: Professional liability insurance
d: None of the above

A

a: All Risk Builders insurance

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2
Q

True or False. General liability insurance will protect the contractor against claims brought by third parties who are not employed by the contractor.

A

True

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3
Q

Who pays for workers’ compensation insurance?

a: The employee
b: The employer
c: Both the employee and employer
d: The federal government

A

b: The employer

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4
Q

A guarantee that a contractor will pay certain subcontractors, laborers, and material suppliers associated with the project would be known as a____________.

a: Bid bond
b: Performance bond
c: Payment bond
d: Maintenance bond

A

c: Payment bond

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5
Q

True or False. Any monies paid out by a surety company will need to be paid back.

A

True

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6
Q

Equipment in transit, on the premises or at the job site, would typically be covered by:

a: General liability policy
b: All risk building insurance
c: Equipment floater policy
d: None of the above

A

c: Equipment floater policy

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7
Q

True or False. A Performance Bond guarantees that the contractor will complete the project according to the contract plans and terms.

A

True

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8
Q

The __________ requires that federal projects valued over $100,000 must produce a performance bond to guarantee completion of the project under the terms of the contract.

a: Walsh Healy Act
b: Service Contract Act
c: Miller Act
d: None of the above

A

c: Miller Act

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9
Q

True or False. Liability Insurance on employees provides coverage over and above worker’s compensation insurance in case of injury or death of an employee.

A

True

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10
Q

True or False. Prime contractors should verify that their subcontractors have secured their own insurance for general liability and workers compensation.

A

True

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11
Q

Can a prime contractor be held liable for a subcontractor whose employee is claiming workers compensation benefits if the subcontractor was uninsured?

a: Yes
b: No

A

a: Yes

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12
Q

Are the owners of a sole proprietorship required to purchase workers compensation insurance to cover themselves?

a: Yes
b: No

A

b: No

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13
Q

Who is responsible to assume legal liabilities for construction accidents?

a: The owner
b: The general contractor
c: The subcontractor
d: Anyone who enters the construction area

A

b: The general contractor

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14
Q

If an inspector is injured on the builder’s job site during his inspection, which of the following insurance policies would be applicable for coverage?

a: Builders Risk
b: General Liability
c: Workers Compensation
d: None of the above

A

c: Workers Compensation

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15
Q

What type of insurance covers a builder against theft of materials from a job site?

a: Liability
b: Builder’s risk
c: Workers’ compensation
d: Homeowners

A

b: Builder’s risk

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16
Q

An employee intentionally injured himself on the job. What percent of workers’ compensation insurance can he collect?

a: 0%
b: 10%
c: 50%
d: 100%

A

a: 0%

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17
Q

If a builder or one of his employees drops a hammer from the roof and injures a member of the public, what type of insurance covers the cost of the injury?

a: Injured persons health insurance
b: Comprehensive commercial general liability insurance
c: Workers’ compensation insurance
d: Homeowners construction lien recovery fund

A

b: Comprehensive commercial general liability insurance

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18
Q

Builder’s risk insurance can be canceled by the:

a: Builder only
b: Home owner
c: Policy holder at any time
d: Property owner

A

c: Policy holder at any time

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19
Q

A bond that insures that the activities on a construction project are the same as the intended activities for which the permit was granted is called a ______________ .

a: Contract Surety Bond
b: Permit Bond
c: Surety Bond
d: Performance Bond

A

b: Permit Bond

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20
Q

___________ is when the homeowner is accepting the risk related to the project, instead of the general contractor.

a: Home owner insurance
b: Wrap-up Liability insurance
c: Key Man insurance
d: Personal Liability Insurance

A

b: Wrap-up Liability insurance

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21
Q

Employers in Michigan are required to purchase workers compensation insurance for their employees when:

a: One employee work 35 hours or more in the past 13 weeks
b: When they have 3 or more part-time employees
c: Someone gets injured
d: Both A and B are correct

A

d: Both A and B are correct

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22
Q

What benefits does workers compensation insurance provide to injured employees?

a: 2/3 wage replacement
b: Medical treatment
c: Rehabilitation benefits
d: All of the above

A

d: All of the above

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23
Q

True or False. A contractor who does not have workers compensation insurance is at risk of being sued for the same benefits provided by workers compensation in the event of an employee injury.

A

True

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24
Q

An employee returns to the work force after being rehabilitated but is no longer able to perform his previous skill. If he accepts a job at a lesser pay scale will workers compensation assist him financially?

a: No
b: Yes, up to 66.6% of his previous earnings
c: Yes, up to 75% of his previous earnings
d: Yes, up to 80% of his previous earnings

A

d: Yes, up to 80% of his previous earnings

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25
Q

What is an insurance policy taken out to cover the financial loss that would arise from the death or extended incapacity of the member of the business specified on the policy.

a: Liability insurance
b: Workers compensation insurance
c: Key man insurance
d: Any of the above

A

c: Key man insurance

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26
Q

What type of bond guarantees that the general contractor will pay the subcontractors, laborers and material suppliers associated with the project. It guarantees that the project will have no claims or liens placed against it.

a: Bid bond
b: Performance bond
c: Payment bond
d: Any of the above

A

c: Payment bond

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27
Q

Which type of bond guarantees that the project will be completed according to the contract specifications?

a: Contract bond
b: Performance bond
c: Bid bond
d: Subcontractor bond

A

b: Performance bond

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28
Q

True or False. General contractors may require their subcontractors to carry a subcontractor bond to insure that the subs are certain to pay their material bills on a given project.

A

True

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29
Q

True or False. Bonds provide protection in the event that contractual obligations are not met.

A

True

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30
Q

True or False. A self employed contractor with no employees is required under Michigan law to purchase workers compensation insurance.

A

False

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31
Q

Each _____________ , or laborer who supplies material or labor to improve a property, has a right to claim that debt owed to him by filing a lien against the property improved.

a: Contractor
b: Subcontractor
c: Supplier
d: All of the above

A

d: All of the above

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32
Q

An owner shall provide a complete ______________ to a contractor, subcontractor, supplier or laborer who has requested it.

a: Notice of Furnishing
b: Letter of Authority
c: Notice of Commencement
d: Formal Contract

A

c: Notice of Commencement

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33
Q

Subcontractors and suppliers must provide a Notice of Furnishing either personally or by certified mail within ______ after first furnishing materials.

a: 7 days
b: 10 days
c: 20 days
d: 30 days

A

c: 20 days

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34
Q

A contractor must provide a Sworn Statement when ___________.

a: Payment is due
b: When the contractor requests payment
c: When an owner demands to see it
d: All of the above

A

d: All of the above

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35
Q

True or False. Contractors are required to list materials or cost of materials that are provided in their own inventories on the Sworn Statement.

A

False

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36
Q

A claim of lien by a subcontractor, supplier or laborer shall have attached to it a ______________of a Notice of Furnishing.

a: Notice of commencement
b: Letter of Authority
c: Proof of Service
d: Formal Contract

A

c: Proof of Service

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37
Q

If an unlicensed contractor files a lien, the unlicensed contractor is liable for ______________ .

a: All costs incurred by initiating the action, including actual costs and attorney fees.
b: All costs incurred by initiating the action, except actual costs and attorney fees.
c: All damages that result from the action
d: Only the court and attorney fees.

A

a: All costs incurred by initiating the action, including actual costs and attorney fees.

38
Q

True or False. A contract may require in its conditions that a right to a lien is waived or relinquished before any improvement is made.

A

False

39
Q

A ________________ is used when a contractor is going to be collecting more funds as the job progresses, but is releasing his lien right to the extent of money owed to this point. (The actual payment has been made.)

a: Full Unconditional Waiver
b: Full Conditional Waiver
c: Partial Unconditional Waiver
d: Partial Conditional Waiver

A

c: Partial Unconditional Waiver

40
Q

True or False. A conditional waiver states that the contractor or supplier will not file a lien if they are paid the amount provided on the waiver.

A

True

41
Q

Waivers that are “______” means that no further claim is expected upon this property.

a: Complete
b: Full
c: Empty
d: Open

A

b: Full

42
Q

Court proceedings to enforce a construction lien must be held within __________ of the date the lien was recorded.;

a: 90 days
b: 6 months
c: 1 year
d: 18 months

A

c: 1 year

43
Q

True or False. If an owner has paid for work done, and the contractor has diverted that money elsewhere, the claim of lien does not attach to the residential structure to the extent of what the owner has already paid out.

A

True

44
Q

In order for foreclosure, the judge can give the defendant a time limit to pay as ordered, not to exceed _________.

a: 30 days
b: 90 days
c: 4 months
d: 6 months

A

c: 4 months

45
Q

True or False. To bring a construction lien against a condo, the contract must have been with a developer or owner.

A

True

46
Q

What are the benefits of risk management?

A
  • Lower general and liability insurance premiums
  • Lower risk of being sued
  • Better chance of winning a lawsuit
47
Q

In what areas does construction place total liability on the contractor?

A
  • Contractor caused delays to the project (liquidated damages)
  • Substandard work
  • Contractor caused added work
  • Project accidents
48
Q

What is Liability insurance?

A

This insurance will protect the contractor against claims brought on by third parties who are not employed by the contractor. Liability insurance does not cover a contractor for their own losses; only losses suffered by others that may have been caused by the contractor, their employees or subcontractors.

49
Q

What are the 5 types of Liability Insurance?

A
  • Commercial General Liability Insurance
  • Umbrella Liability Insurance
  • Professional Liability
  • Liability Insurance on Employees
  • Wrap-Up Liability Insurance
50
Q

What is Commercial General Liability Insurance?

A

this insurance covers four types of injuries: bodily, loss of property, personal injury, and negligence

51
Q

What is Umbrella Liability Insurance?

A

This is a supplemental policy that provides additional coverage when a certain deductible is met.

52
Q

What is Professional Liability?

A

This type of liability policy protects the contractor from liability arising from error or neglect in performance of their duties. It is sometimes referred to as Errors and Omissions. Professional Liability insurance provides protection against claims that the policyholder becomes legally obligated to pay as a result of an error or omission in his professional work.

53
Q

What is Liability Insurance on employees?

A

This type of liability insurance provides coverage over and above Workers’ Compensation in case of injury or death of an employee.

54
Q

What is Wrap-Up Liability insurance?

A

This type of insurance is generally purchased by a homeowner. This type of policy covers all project related insurances and all parties involved in the project. This is when the homeowner is accepting the risk related to the project, instead of the general contractor.

Note: This would include general liability, builders’ risk, workers’ compensation, employee liability and umbrella insurance.

55
Q

What is Workers’ Compensation?

A

this provides benefits to employees who have injuries or illnesses cause or made worse by their work or workplace. Businesses that employ one or more workers must provide workers’ compensation insurance.

56
Q

How many full or part time employees do you need to have before you need to purchase insurance that will compensate employees for death or job-related injuries which occur in the course and scope of employment.

A

Five or more

57
Q

What are the benefits of workers compensation?

A
  • Partial wage replacement
  • Payment for loss of use or function
  • Medical treatment
  • Vocational rehabilitation
  • Dependent benefits
58
Q

How can employers obtain workers’ compensation insurance?

A
  • Obtaining a policy through a private company authorized to provide workers’ compensation coverage meeting the self-insurer requirements set forth by the Workers’ Compensation Commission
  • Joining a self-insurance group authorized to provide workers’ compensation coverage.
59
Q

True or False. Vehicles used for business don’t have to be fully insured.

A

False, they must be fully insured.

60
Q

What is Title insurance?

A

This insurance protects against title defects prior to the date of the policy. Title insurance protects the lender’s lien priority in case a mechanic’s lien is filed.

61
Q

What is Title insurance?

A

This insurance protects against title defects prior to the date of the policy. Title insurance protects the lender’s lien priority in case a mechanic’s lien is filed.

62
Q

What are the Other Types of Insurance?

A
  • Named Peril Builders’ Risk Insurance
  • Inland Marine/Equipment Theft Insurance
  • Equipment Float
  • Burglary and Theft Insurance
  • Key Man Insurance
  • Insurance for Subcontractors
63
Q

What are the stipulations for paying unemployment tax?

A

One person for some part of a day in each of 20 different calendar weeks or paid wages of $1,500 or more in any calendar quarter must pay unemployment insurance.

64
Q

How can you get a substantial reduction in tax rates as a contractor?

A

Have a high employee retention.

65
Q

How can an employee disqualify themselves from unemployment benefits?

A
  • Voluntarily quitting without good cause.
  • Being discharged for misconduct or unlawful use of a controlled substance
  • Failing to apply for, or accept an offer of suitable work.
66
Q

What are some conditions an employee cannot be disqualified for in the case of unemployment?

A
  • they quit work because their wages reduced in breach of a collective bargaining agreement.
  • They are laid off, or discharged for reasons other than misconduct.
67
Q

What is meant by Michigan being an “employment-at-will” state?

A

This means the employer may terminate any employee at any time, for any reason, or for no reason. As a general rule, therefore, the employee has no right to challenge the termination.

68
Q

Private disability insurance can cover up to what of a worker’s salary?

A

70%

69
Q

What is the difference between short and long term disability?

A

Short term replaces a portion of your paycheck for a chort period of time (3 to 6 months), while long-term provides coverage for an entire lifetime if necessary.

70
Q

What are the typical benefits of non wage compensation?

A
  • Group health insurance
  • Disability insurance
  • Retirement benefits
  • Sick leave and Vacation
71
Q

Why would you get a business owner policy?

A

It has all the basic insurance of a business owner bundled into one package. It would cover: property damage, legal liability and employee related insurance.

72
Q

Why do you need Accident insurance?

A

this protects against accidental injury, even if you have health insurance, unexpected out-of-pocket costs can be expensive. This insurance can provide money to pay deductibles, copays, prescriptions, and physical therapy or ambulance charges, emergency care and out-patient therapy.

73
Q

What is Builders’ Risk Insurance?

A

This insurance covers machinery, equipment, materials and supplies that are, or will become, part of the building under construction. Additional coverage can be added for items such as temporary structures and tools used during construction.

Generally, this insurance provides coverage for almost all risks, including theft, vandalism, accidental losses and damage or destruction.

74
Q

What are Contract Surety Bonds?

A

This is an agreement with a surety company making the surety company financially liable to the customer for non-performance of the contractor. The surety agreement may perform the following:
- Finance the contractor until job completion
- Employ another contractor
- Pay outstanding debts
- Allow the owner to finish project

Contract Surety Bonds provide financial security and construction assurance on building and construction projects by assuring the project owner (obligee) that the contractor (principal) is qualified to perform the work and will pay certain subcontractors, laborers, and material suppliers. Essentially, a surety bond is a written agreement where one party (the surety) obligates itself to a second party (the obligee) to answer for the default of a third party (the principal).

75
Q

A Contract Surety Bond generally includes what five types of bonds?

A

Bid Bonds. This guarantees that if the contractor’s bid is declared to be the successful bid, a contract will be entered into for the same amount of that bid. This type of bond is most often used on governmental projects.

Performance Bonds. This guarantees the owner that the project will be completed according to the plans and terms specified in the contract. All performance bonds have a face value limitation and will extend to cover any warranties for which the contractor is responsible.

Payment Bonds. This guarantees that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project. It guarantees that the project will have no claims or liens placed against it.

Subcontractor Bonds. This is a bond which protects the prime contractor from the possibility of subs not paying their bills on a project.

Permit Bonds. This is a bond that guarantees that the person who is licensed by the state will perform activities for which the bond was granted, according to the regulations governing the license.

76
Q

How does a surety bond differ from an insurance policy?

A

If an insurance policy pays a claim there is no debt incurred by the policy owner. If a surety company pays a claim, a debt is incurred by the purchaser of the surety bond. The amount paid out by the surety company will need to be paid back!

77
Q

What is a Lien?

A

A specific legal process that can be used by contractors and others as a lawful remedy for securing payment for labor or materials that have been used to improve another person’s property.

Lien laws are also designed to give protection to laborers and material suppliers in the event of default by the contractor or property owner.

78
Q

Where do Liens have to be filed?

A

With the county

A lien on unpaid balance is for the recovery of monies due to the prime contractor. Getting paid through the lien process requires diligence and careful attention to detail. The statutes are very specific, and it is important that you strictly adhere to the state requirements. There is an order of events to filing a lien, and failure to submit the correct documents at the correct time can forfeit your chance to recover any funds. If the notice requirements are not met, there will be no recovery!

79
Q

What documents are needed in order to preserve lien rights?

A
  • Written Contract
  • Notice of Commencement
  • Notice of Furnishing
  • Sworn Statement
  • Lien Waivers
80
Q

What is a Written Contract?

A

It shows:

Cost of project
Clear payment terms and schedule
Type and amount of work to be done
Type and quality of material to be used
Specifications and plans
Contractor’s license number
Signature of contractor
Signature of property owner

81
Q

What is the Notice of Commencement?

A

Tells all interested parties that a construction project is beginning
Provided by the contractor
Filled out by owner. If the owner does not return the Notice within 10 days of the postmark date, the time the contractor has to provide a Notice of Furnishing is extended.
Displayed at the site
Residential projects do not need to record at the Register of Deeds
Commercial projects must record at the Register of Deeds

82
Q

What is the Notice of Furnishing?

A

Tells the property owner and general contractor that a subcontractor is going to be providing labor and/or materials to the project
Provided by the subcontractor to the owner and general contractor, OR by the general contractor to the owner
Provided within 20 days of first providing goods and services

83
Q

What is the Sworn Statement?

A

Tells the owner, bank or title company where and how the funds will be distributed
Provided by the subcontractor to the general contractor, or the contractor to the owner, bank, or title company
Provided when payment is due, when the contractor requests payment, or when an owner demands to see it

84
Q

What are Lien Waivers?

A
  • Tells the owner, bank and title company that the contractors that were paid on the sworn statement can no longer claim a lien against their property
  • Waives the contractor’s right to place a lien on the owner’s property for non-payment of contract funds
  • Provided by material suppliers to the GC, subs to the GC, OR the GC to the owner, bank, or title company
  • Provided when payment is promised or actually received
85
Q

What is the difference between a Conditional and Unconditional lien waiver?

A

Conditional: a condition must be met before the waiver is valid, typically that you have been paid partially or in full.

Unconditional: No condition must be met before the waiver is valid. You sign it and you forfeit your rights. There are either partial (part payment) or full (you received full payment).

86
Q

What documents will you need when things go wrong?

A
  • Proof of Service of Notice of Furnishing
  • Claim of Lien
  • Proof of Service of Claim of Lien
  • Discharge of Claim of Lien
87
Q

What is the Proof of Service of Notice of Furnishing?

A
  • Proves to the court that the contractor did complete and provide a Notice of Furnishing to the correct parties
  • Must be filed along with the contractor’s claim of lien at the county register of deeds
  • Provided by the contractor filing the claim of lien
  • Served to the general contractor and property owner with 15 days of filing
88
Q

What is the Claim of Lien?

A
  • Records the contractor’s claim of lien for non-payment of labor and materials provided to the property owner
  • Must be filed by the contractor claiming the lien at the county register of deeds
  • Provided by the contractor claiming the lien
  • Must be filed within 90 days after the last day goods and services were provided
89
Q

What is the Proof of Claim of Lien?

A
  • Proves to the court that the contractor did notify the correct parties that the contractor’s claim of lien has been filed with county register of deeds
  • Provided by the contractor filing the claim of lien
  • Served to the general contractor and property owner with 15 days of filing
90
Q

What is the Discharge of Claim of Lien?

A
  • Records that the contractor’s claim has been fully paid
  • Must be filed by the contractor claiming the lien at the county register of deed
  • Provided by the contractor claiming the lien to the property owner

1 Builders (Exam Review for Business Law) (13 decks)

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