Contractor Ran Off With Your $50,000 Deposit? Why 'General Liability' Pays $0

🔨 The Nightmare Renovation Scenario

You hired a contractor to build a new deck. The quote was $50,000. He asked for 50% upfront for materials. You wrote a check for $25,000.

🛑 STOP: In states like California, asking for a 50% deposit is ILLEGAL. By law, they can only ask for 10% or $1,000, whichever is less.

He demolished your old deck on Monday. He said he would be back on Tuesday with the lumber.

Tuesday came, but he didn't. He stopped answering calls. His website is down. He took your $25,000 and vanished. You immediately call his insurance company, confident that his "General Liability" policy will refund you.

The Agent's Answer: "Claim Denied. We cover property damage, not theft or breach of contract."

This is the most common misunderstanding in the construction world. Homeowners assume "Insured" means "Safe." It does not.

To protect your deposit and ensure the job gets done, you don't need Insurance. You need a Surety Bond.

Contractor Ran Off With Your $50,000 Deposit?

Insurance vs. Bond

They look similar on paper, but they function in opposite ways.

General Liability Insurance	Surety Bond
Protects: The Contractor (from lawsuits).	Protects: The Customer (You).
Covers: Accidental damage (e.g., dropping a ladder on your car).	Covers: Contract failure (e.g., stealing money, poor workmanship).
Payout: Insurance company pays and absorbs the loss.	Payout: Bond company pays you, then hunts down the contractor to get reimbursed.

The 3 Types of Bonds You Must Know

When a contractor says "I am Bonded," ask to see the paper. Which bond is it?

1. License & Permit Bond (The Basic)

Required by most cities to get a license. It guarantees they will follow building codes.

• 🔴 Limit: Usually low ($15,000 - $25,000 in 2026).
• 🔴 Problem: If he steals your $50,000, this bond won't cover the full loss.

2. Performance Bond (The Safety Net)

This guarantees the project will be completed according to the contract.

• 🟢 Benefit: If the contractor quits, the bond company must hire a new contractor to finish your house at the original agreed price.

3. Payment Bond (The Lien Killer)

Guarantees the contractor will pay his subcontractors and suppliers.

• 🟢 Why You Need It: Even if you paid the general contractor, if he doesn't pay the lumber yard, the lumber yard can put a "Mechanic's Lien" on YOUR house. A payment bond prevents this. (Alternatively, ask for "Lien Waivers" from all subs).

How to Verify a Bond (Don't Trust the Copy)

Contractors can Photoshop a bond certificate just like an insurance card. Never accept a photocopy.

• Step 1: Get the Bond Number
  Ask for the "Surety Company Name" and the "Bond Number."
• Step 2: Call the Surety
  Search for the surety company (e.g., Travelers, Liberty Mutual, CNA) and call their bond department. Ask: "Is Bond #123456 active? What is the limit?"

🛡️ Chief Editor's Verdict

"Licensed and Insured" is a marketing slogan. "Bonded" is your financial protection.

1. For Small Jobs (Under $5k): A license bond is usually enough, but check the deposit limits in your state.
2. For Large Jobs (New Build/Major Reno): Demand a "Performance and Payment Bond." It will cost you an extra 1-3% of the project total, but it is the only thing that guarantees you won't be left with a hole in the ground and an empty bank account.
3. Check State Laws: In states like California, contractors cannot ask for illegal down payments (max $1,000 or 10%). Knowing this law alone can save you thousands.

Don't hand over a deposit check until you see the Bond.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Laws regarding contractor deposits, liens, and bonds vary significantly by state (e.g., California Business and Professions Code § 7159). Always verify a contractor's license status with your state board and consult with a legal professional before signing high-value contracts.