Insurance, Bonds & Mechanics Liens

Bonds, insurance, and the mechanics lien laws are some of the most heavily tested material on the Law & Business exam — and the area where the specific numbers matter most. This topic covers what a contractor must carry, and how to get paid when a customer doesn’t pay.

Bonds the CSLB requires

A bond protects the public, not the contractor. California requires:

A bonding company will generally pay no more than the face amount of the bond. Bonds are not insurance for the contractor — if the surety pays a claim, the contractor must pay the surety back.

Insurance

Commercial general liability (CGL) insurance protects the contractor against claims from members of the public — not employees, who are covered by workers’ compensation. CGL is not universally required for every contractor, but a home improvement contractor who carries it must disclose the carrier’s name and phone number to the homeowner. A contractor LLC must carry at least $1 million in liability coverage for five or fewer members.

The mechanics lien process

When a contractor, subcontractor, or supplier isn’t paid, the mechanics lien laws give a path to recover. The sequence matters:

1. Preliminary 20-day notice — subcontractors and suppliers must serve it within 20 days of first furnishing labor or materials, on the owner, prime contractor, and construction lender.
2. Record a Claim of Lien — after a Notice of Completion or Cessation is recorded, a subcontractor has 30 days and the prime contractor has 60 days. With no notice recorded, the deadline is generally 90 days from completion.
3. File to foreclose — a lawsuit to enforce the lien must be filed within 90 days of recording it, along with a lis pendens.

Lien vs. stop notice: a mechanics lien is a claim on the property; a stop notice is a claim on the funds. On public works you cannot file a mechanics lien — use a stop notice or the payment bond instead.

A bonded stop notice served on a construction lender must be for 1¼ times (1.25×) the amount of the claim.