Very often, contractors struggle to understand what is actually mandatory to obtain their RBQ licence, particularly when it comes to insurance and bonding.
LICENCE BOND AND LIABILITY INSURANCE
So, do you need Liability Insurance or a License Bond?
LICENCE BOND
A license bond is a financial guarantee obtained by the contractor from an association, an insurance company, or a financial institution to ensure the fulfillment of their contractual obligations toward clients.
It is designed to compensate any client who suffers a loss resulting from the non‑performance or improper performance of construction work, including losses directly related to deposits paid, incomplete work, defects, or deficiencies discovered within one year after the work is completed.
The required amount is $20,000 for specialized contractors and $40,000 for general contractors.
The contractor’s obligation is direct, meaning they must reimburse any amount the surety pays on their behalf under the indemnity and security agreement signed when the file is opened.
The licence bond compensates clients who suffer a loss after hiring a contractor; however, it does not cover:
- Damages resulting from delays in completing the work.
- Claims from individuals who participated in the construction work.
- Damages for moral prejudice or punitive damages.
LIABILITY INSURANCE
Construction companies face numerous responsibilities, including civil liability. In this industry, risks can arise at any moment during the work, which makes proper insurance essential.
A commercial general liability (CGL) policy protects the company against bodily injury or property damage caused to a client by the contractor’s activities, products, or work. It also covers advertising injury, personal injury, and any court costs that may apply for legal defense.
Construction is a major sector of Québec’s economy, so it is no surprise that insurers dominate this lucrative market. The industry includes a wide range of professionals and trades with significant responsibilities (engineers, carpenters, plumbers, electricians).
What is commonly referred to as “construction site insurance” actually includes several types of coverage related to property protection (builder’s risk insurance) and civil liability (wrap‑up liability insurance). Additional coverages may also be added to a contractor’s liability policy, such as:
- Contractors’ errors and omissions liability.
- Insurance against theft, disappearance, and destruction.
- Insurance covering penalties for non‑performance of a contract.
- Installation floater insurance.
- Warranty against defects.
BETTER UNDERSTANDING THE DIFFERENCE BETWEEN A BOND AND INSURANCE
Why contractors often confuse the two
Although both the license bond and liability insurance are required or strongly recommended in the construction industry, they do not protect the same people.
- The bond primarily protects the client.
- Liability insurance primarily protects the contractor.
This fundamental distinction explains why the two products are complementary and not interchangeable.
When each one applies
- The bond applies when a client suffers a loss related to the performance or non‑performance of the contract. It is a performance guarantee.
- Liability insurance applies when bodily injury, property damage, or personal injury is caused to a third party during the work. It is protection against claims.
What the RBQ actually requires
To obtain an RBQ licence, the contractor must provide:
- A licence bond ($20,000 or $40,000 depending on the category).
- Proof of liability insurance is not required for the issuance of the license, but it is strongly recommended and often required by clients, project owners, municipalities, and job sites.
Why both protections are essential
Even though the bond is mandatory and insurance is sometimes perceived as optional, in practice:
- The bond protects clients against a contractor’s failures. If the surety compensates a client, the contractor must reimburse the full amount.
- Liability insurance protects the business against lawsuits that could threaten its financial stability.
- Together, they demonstrate professionalism and compliance, reassuring clients and helping secure contracts.
Concrete examples to illustrate the difference
- Bond: A contractor abandons a project after receiving a deposit. The client can be compensated.
- Liability insurance: An employee accidentally punctures a water line and causes major damage. The insurance covers the loss.
Common mistakes contractors make
- Believing the bond covers property damage — false.
- Thinking liability insurance replaces the bond — false.
- Not understanding that the bond must be reimbursed by the contractor if the surety pays a claim.
- Underestimating the real risks on a job site, even for small projects.
