Maryland Contractor Insurance

The Guaranty Fund Pays Your Customer and Bills You at 10 Percent

Every MHIC licensee pays into the Home Improvement Guaranty Fund. It compensates homeowners for actual losses from unworkmanlike, incomplete, or abandoned work by a licensed contractor.

• Maximum recovery is $30,000 per claimant, or the amount the homeowner paid you, whichever is less.
• The Fund will pay no more than $250,000 in total against any one contractor, prorating claims when approved totals exceed that amount.
• After the Commission pays, you reimburse the Fund plus 10 percent interest per year.
• Your license stays suspended until that reimbursement is made.

Read the third and fourth points together. This is not coverage. It is a loan the state makes to your customer on your behalf, at interest, with your license as collateral. Homeowners can also pursue your insurer separately, which is where a general liability policy actually does the work. If the distinction between these instruments is fuzzy, bonded and insured are not the same thing, and license bonds exist for the board, not for you.

Maryland Voids Sole Negligence Indemnity, and the Word Sole Does a Lot of Work

Two definitions first. The promisor or indemnitor is the party promising to cover someone else's liability, usually you. The promisee or indemnitee is the party being covered, usually the general contractor or owner.

Section 5-401 of the Courts and Judicial Proceedings Article voids any construction contract provision that indemnifies the promisee against liability for injury or property damage caused by or resulting from the promisee's sole negligence, or that of their agents or employees.

Sole is the operative word, and it is narrower than contractors assume. Maryland courts have held the statute does not reach situations where the indemnitee's negligence contributed to the loss without being the only cause. On a jobsite where fault is almost always shared, that leaves a good deal of an indemnity clause intact.

The statute also carries an express carve-out. It does not affect the validity of an insurance contract, workers' compensation, a surety's general indemnity agreement, or any other agreement issued by an insurer. That is why additional insured requirements are generally treated as outside the prohibition, and why striking the indemnity paragraph accomplishes less here than people hope.

Coverages We Place for Maryland Contractors

• Commercial general liability for third-party bodily injury and property damage arising from your operations, filed with MHIC and required by every contract.
• Workers' compensation, required once you have employees.
• Commercial auto for owned trucks and trailers, plus hired and non-owned exposure when crews drive their own vehicles.
• Tools and equipment and broader inland marine coverage for gear that moves between sites.
• Builders risk for new construction and gut renovations, written per project.
• Excess liability to bridge the gap between the $500,000 MHIC floor and a $2 million contract demand.
• Commercial property for a shop, yard, or storage building.
• Contractors' pollution liability for lead, mold, and asbestos exposures that standard forms restrict.
• Contractor surety bonds for the MHIC solvency alternative, county permits, and public work.

Common Mistakes to Avoid

• Carrying the old $50,000 limit. The requirement moved to $500,000 on June 1, 2024, and failing to maintain it puts your license at risk.
• Treating the Guaranty Fund as protection. It pays your customer, charges you 10 percent interest, and suspends your license until you repay.
• Letting coverage lapse between renewals. MHIC requires continuous coverage, so a gap is a licensing problem as well as a claims problem.
• Assuming the anti-indemnity statute protects you broadly. It applies only to sole negligence, and shared fault is the norm on a jobsite.
• Ignoring lead and asbestos exposure in older homes. Standard general liability forms restrict it, and much of Maryland's housing stock predates 1978.