Business insurance

A contractor's biggest financial risks are injuries to other people, damage to other people's property, damaged or stolen equipment, vehicle accidents, and claims that the work was done wrong. Some of these are covered by insurance you choose to buy. Others are covered by bonds the law requires. Knowing which is which is a common exam topic.

Insurance vs. surety bonds

Insurance is a contract in which one party agrees to indemnify (pay back) another for loss, damage, or liability from an uncertain event (Insurance Code §22). A surety bond is different. A surety is someone who promises to answer for the debt or default of another person (Civil Code §2787). The bond protects the public, not the contractor.

Feature	Insurance	Surety bond
Who is protected	The insured business (it pays covered losses for you)	Others harmed by the contractor (consumers, employees)
Parties	Two: insurer and insured	Three: surety, contractor (principal), and the protected person or state
After a payout	Insurer absorbs covered loss (minus deductible)	Contractor must repay the surety; an unreimbursed surety blocks license renewal

Under B&P §7071.11, while a surety remains unreimbursed for a loss on a CSLB bond, the license cannot be renewed, reissued, or reinstated. Before a surety settles a claim with a good-faith payment, the licensee has at least 15 days to give the surety a written protest. If the licensee does not file a protest, the licensee has 90 days after CSLB's notice to prove repayment or the license is suspended. The same section caps the surety's total liability on claims for unpaid wages and fringe benefits against a CSLB bond (other than a disciplinary bond) at $4,000 (B&P §7071.11(a), as of 2026).

CSLB bonds (requisitos de vinculación)

Bond	Amount (2026)	When required
Contractor's bond (license bond)	$25,000	To issue, reactivate, renew, or keep an active license. Not required while inactive. (B&P §7071.6)
Bond of qualifying individual	$25,000	When the qualifier is not the proprietor, a general partner, or a joint licensee (for example, an RME). Not needed by an RMO owning 10% or more of the voting stock or an LLC qualifier owning at least 10% membership interest. (B&P §7071.9)
Disciplinary bond	$25,000 up to 10 times the contractor's bond ($250,000)	After suspension or revocation; on file at least 2 years (B&P §7071.8)
LLC employee/worker bond	$100,000	Every active LLC license, for unpaid wages and fringe benefits (B&P §7071.6.5)
Judgment bond	Equal to the unsatisfied judgment	Unsatisfied final construction-related judgment; on file at least 1 year (B&P §7071.17)

The contractor's bond benefits: (a) a homeowner who contracted for home improvement on the homeowner's own family residence; (b) a property owner who contracted to build a single-family home not intended for sale; (c) anyone harmed by a willful and deliberate violation or by fraud; (d) employees owed wages; and (e) fringe benefit trusts (B&P §7071.5).
Only group (a), homeowners who contracted for home improvement on their own residence, is outside the cap. All other claims, including a single-family home owner in group (b), share a total cap of $7,500. Bond money above $7,500 is reserved for group (a) homeowners, who may recover up to the full bond (B&P §7071.6(b)).
A bond must be written by a surety licensed by the Department of Insurance and reach CSLB within 90 days of its effective date (CSLB).
Failure to keep continuous bond coverage suspends the license (CSLB).
Most actions against a CSLB bond must be brought within 2 years after the license period in which the act happened ends; wage claims within 6 months of discovery (B&P §7071.11).

Worked example

Who gets paid from a $25,000 license bond

A contractor's fraud harms two suppliers, so each has a valid bond claim (B&P §7071.5(c)). Neither supplier is a homeowner. Together they claim $12,000 against the contractor's $25,000 bond.
Only homeowners who contracted for home improvement on their own residence are outside the cap, so the suppliers' claims share a $7,500 total limit.
Bond money above $7,500 ($25,000 − $7,500 = $17,500) is reserved for those home improvement homeowners.

The two suppliers can recover no more than $7,500 combined from the bond. The contractor must repay the surety for every dollar it pays.

Exam trap

A $25,000 license bond is not insurance for your business. If the surety pays a homeowner, you owe that money back to the surety.