2.4 Insurance Requirements

General Liability Insurance — The $500,000 Rule

Insurance is one of the most heavily tested licensing topics, and it is also where outdated study materials do the most damage. The controlling statute is Bus. Reg. §8-302.1, amended in 2024 to raise the required coverage tenfold.

Current law requires every MHIC-licensed contractor to maintain general liability insurance of at least $500,000. The previous minimum was $50,000. The increase was enacted by Chapters 529 and 530 of 2024 (SB 806 / HB 738), whose own text sets an effective date of October 1, 2024; MHIC's website notice announced the change as effective June 1, 2024. Learn the amount — that is what the exam tests — and treat the date as a detail on which Maryland's own sources are inconsistent. Because many prep books, courses, and even older MHIC handouts were written under the old law, they still say $50,000. The current law controls. If your exam question offers both figures, $500,000 is the correct answer for any question about present-day requirements.

General liability insurance protects the homeowner and the public against claims for bodily injury and property damage arising from the contractor's operations — a ladder through a window, a worker who damages a neighbor's fence, a fire started by a soldering iron. It is fundamentally different from the surety bond of Section 2.3: the bond guarantees the contractor's obligations; liability insurance pays third parties who are hurt or whose property is damaged.

Proof of Insurance at Application and Renewal

The statute makes insurance a continuing condition of licensure, not a one-time showing:

• Original application: proof of current liability insurance must be filed with the application. No proof, no license.
• Renewal: proof of current insurance must be filed again at every renewal.
• Continuous coverage: the policy must be kept in effect at all times while the license is active. A lapse — even a short one between policies — puts the contractor out of compliance.

The 10-Day Cancellation Notice Rule

Memorize this number: a contractor must give the Commission at least ten (10) days' notice before cancellation of liability insurance. The purpose is to prevent silent lapses — the Commission wants warning before coverage disappears so it can act before an uninsured contractor keeps working.

Practical implications for the exam:

• The notice duty is on the contractor, not just the insurer.
• The timing is before cancellation — notice after the fact does not comply.
• Ten days is the minimum.

Exam trap: distractors commonly offer 5 days, 15 days, or 30 days. The statutory figure is 10 days.

Workers' Compensation Insurance

General liability is not the only required coverage. If the business has employees, Maryland law requires workers' compensation insurance. Workers' compensation pays medical costs and lost wages when an employee is injured on the job, regardless of fault, and it is administered under the Labor and Employment Article rather than the Home Improvement Law. Key exam points:

• The trigger is having employees. A true one-person operation with no employees is outside the mandate; the moment the first employee is hired, coverage is required.
• Misclassifying employees as "independent contractors" to dodge the requirement is itself a violation and does not eliminate the obligation.
• Subcontractor injuries can boomerang: a contractor whose uninsured sub is injured on the job may be treated as the employer for workers' compensation purposes — another reason to verify subs' coverage.

Commercial Auto Insurance

If the business has vehicles used in the operation — trucks hauling materials, vans carrying crews — it needs commercial auto insurance. A personal auto policy generally excludes business use, so a contractor relying on a personal policy for a work truck is exposed. The exam typically tests this at the level of the simple rule: vehicles used for the business require commercial auto coverage.

What Happens When Coverage Lapses?

Because insurance is a continuing condition of licensure, a lapse is not a paperwork technicality. A contractor whose policy cancels without replacement coverage — and without the required advance notice to the Commission — is operating out of compliance and leaving every active job exposed to uninsured risk. The safe pattern, and the one the exam rewards, is simple: bind the replacement policy first, then cancel the old one, and give the Commission its 10 days' notice before the cancellation takes effect.

Worked Scenario

A two-truck remodeling company employs three carpenters. The owner asks which insurance policies the business must carry.

All three lines apply: general liability of at least $500,000 (mandatory for every MHIC contractor), workers' compensation (the company has employees), and commercial auto coverage on the two trucks. At each renewal the owner files fresh proof of the liability policy, and if a carrier change is planned, the company notifies the Commission at least 10 days before the old policy cancels.

Summary Table

The three numbers to lock in for the exam: the $500,000 liability minimum, the $50,000 figure it replaced (still printed in older prep books, and a standing distractor), and the 10 days' pre-cancellation notice. Almost every insurance question on the exam reduces to one of those three.