Utah Contractor Practice Exam

What must a contractor do if they fail to maintain proper insurance coverage?

1. Notify clients in writing

2. Stop all ongoing projects

3. Risk losing their contractor's license

4. Increase project costs

The correct answer is: Risk losing their contractor's license

A contractor who fails to maintain proper insurance coverage faces significant repercussions, which include the possibility of losing their contractor's license. Maintaining appropriate insurance is a crucial element in a contractor’s legal and operational responsibilities, as it protects both the contractor and their clients from potential liabilities arising from accidents, property damage, or other unforeseen incidents. If a contractor does not carry the required insurance, they are in violation of state regulations, which can lead to disciplinary action from regulatory bodies. This action may include suspension or revocation of their license, limiting their ability to conduct business legally. The requirements for insurance are typically set by state law and play a critical role in ensuring that contractors are capable of fulfilling any claims that may arise from their work. The other options present potential actions or consequences that do not encompass the primary and most serious risk associated with failing to maintain proper insurance coverage. While notifying clients or stopping ongoing projects might be prudent steps in response to various issues, they do not address the core legal implications that directly threaten the contractor's license. Adjusting project costs could also be a consideration for business management, but it does not remedy the fundamental issue of compliance with insurance requirements.