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Section 4 of 7 · about 12% of the exam

Insurance and Liens

Official subtopics: Workers' compensation insurance, Business insurance, Liens and other remedies.

Insurance and Liens is about 12% of the CSLB Law and Business exam. The CSLB study guide lists three subtopics: workers' compensation insurance, business insurance, and liens and other remedies. This note covers when a contractor needs workers' compensation, the insurance and bonds tied to a license, and the deadlines for mechanics liens.

Workers' compensation insurance

  • Every employer must be covered. Every employer (except the state) must secure payment of workers' compensation, either by buying insurance from an insurer authorized in California or by getting a certificate of consent to self-insure from the Director of Industrial Relations. (Lab. Code §3700)
  • Proof for CSLB. To get a license, keep an active license, or reactivate a license, a contractor with employees must give CSLB proof of workers' compensation insurance or a certificate of self-insurance from the Department of Industrial Relations. A contractor without employees must file an exemption instead. (CSLB: Get Licensed to Build)
  • Some trades always need it. Active C-8 (Concrete), C-20 (Warm-Air Heating, Ventilating and Air-Conditioning), C-22 (Asbestos Abatement), C-39 (Roofing), and C-61/D-49 (Tree Service) contractors must carry workers' compensation insurance or self-insurance even with no employees. (CSLB: Get Licensed to Build)
  • An RME is an employee. If the license is qualified by a responsible managing employee (RME), CSLB will not accept an exemption, because the RME is an employee. (CSLB: Get Licensed to Build)
  • Inactive licenses do not need proof of coverage or an exemption. (CSLB: Get Licensed to Build)
  • The law behind it. To get, renew, reactivate, or keep a license, a contractor must have a current Certificate of Workers' Compensation Insurance or Certification of Self-Insurance in the business name on file at all times. (Bus. & Prof. Code §7125)
  • Exemptions in the law. This requirement does not apply (Bus. & Prof. Code §7125):
    • to a contractor with no employees that files a statement saying so, unless it holds a C-8, C-20, C-22, C-39, or D-49 license;
    • to a joint venture with no employees that files the same statement;
    • to a license while it is inactive.
  • This version ends in 2028. The current version of section 7125 stays in effect only until January 1, 2028, unless a later law changes that date. Check the current law if you study after that date. (Bus. & Prof. Code §7125)

Business insurance and bonds

  • Contractor's bond. Every active license needs a $25,000 contractor's bond on file. (Bus. & Prof. Code §7071.6)
  • LLC licenses need liability insurance with an aggregate limit of $1 million when five or fewer people are listed on the license, plus $100,000 for each additional person, up to $5 million. They also need a $100,000 bond for workers, in addition to the $25,000 contractor's bond. (CSLB: Get Licensed to Build)
  • Where to get bonds. You can buy bonds from an insurance agent or from a company licensed by the California Department of Insurance. CSLB does not issue bonds. (CSLB: Get Licensed to Build)

Mechanics liens: the key deadlines

The Civil Code sets strict deadlines for mechanics liens. Miss one, and the lien cannot be enforced.

Step Who Deadline Source
Preliminary notice Most claimants, before recording a lien, giving a stop payment notice, or claiming against a payment bond Within 20 days after first furnishing work Civ. Code §8200, §8204
Record the lien Direct contractor (contracted with the owner) After completing the direct contract, and before the earlier of 90 days after completion of the project or 60 days after the owner records a notice of completion or cessation Civ. Code §8412
Record the lien Other claimants (subcontractors, suppliers) After they stop providing work, and before the earlier of 90 days after completion or 30 days after the owner records a notice of completion or cessation Civ. Code §8414
Sue to enforce the lien Claimant Within 90 days after recording the lien, or the lien expires Civ. Code §8460

More details:

  • Who gets the preliminary notice. The owner, the direct contractor, and the construction lender (if any). (Civ. Code §8200)
  • Who does not have to give it. A laborer does not have to give preliminary notice. A claimant with a direct contract with the owner gives preliminary notice only to the construction lender, if there is one. (Civ. Code §8200)
  • Late notice. A claimant who gives the preliminary notice late can still give it, but can then claim only for work done within 20 days before the notice, and after it. (Civ. Code §8204)
  • No license, no lien. A security interest for payment for work that needs a license cannot be enforced if the contractor was not licensed at all times during the work. (Bus. & Prof. Code §7031)
  • Lien releases on home improvement jobs. After a homeowner pays for part of the work, the contractor must give a lien release for that part if the homeowner asks. (Bus. & Prof. Code §7159.5)

Sources