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The New York construction market remains underserved by insurers as underwriters and brokers continue to cite the state’s strict construction labor laws as deterrents to providing coverage for projects in the state.
While coverage is available, capacity is tight, rates are steep compared with insurance costs in surrounding states, deductibles are significantly higher, and only a few insurers participate in the market, experts say.
Labor Law 240, often referred to as the Scaffold Law, was passed in 1885 to enforce various safety protocols to prevent slips and falls for construction workers working at heights. Law 241 imposed safety protocols on the ground.
Court rulings interpreting the laws imposed little responsibility on injured employees, making it difficult for employers to cite negligence to avoid liability. “It placed absolute liability on the employer as well as the owner and the general contractor,” said Bret McCabe, construction practice coordinator for Cook Maran & Associates Inc., a Melville, New York-based unit of brokerage Prime Risk Partners Inc.
“A large portion of what we’ve seen driving the market is this consideration of local law 240 and 241,” Mr. McCabe said.
The laws effectively have driven up construction insurance costs in New York, numerous sources say.
A 2014 report by the Nelson A. Rockefeller Institute of Government University at the State University of New York in Albany, which is frequently quoted by opponents of the Scaffold Law, estimated that insurance costs related to the law totaled $785 million a year.
The study, however, has been criticized by groups supporting construction workers’ rights.
Insurance experts say there’s little doubt that insurance costs for construction projects in New York are considerably higher than in surrounding states.
“To build a high rise in the state of Pennsylvania, we are able to place coverage for 3.5% to 3% of the project construction value. If I insure that same project in New York, I’m lucky if I can get it done for 9%,” said Harry Johnson, managing director, senior vice president and construction practice leader for brokerage Conner Strong & Buckelew in Philadelphia.
“In Pennsylvania, the general liability deductible would be $250,000, while in New York, you’re lucky to get $2 million,” he added. “Same exact project, same exact coverage. That’s the impact the labor laws have on the cost of construction in New York.”
There is inadequate capacity for construction projects in the state, said John Frizalone, vice president at The Risk Management Planning Group Inc., a third-party administrator and claims services unit of York Risk Services Group Inc. in Uniondale, New York, who also manages a safety group of members of the New York State Builders Association and the Queens & Bronx Building Association.
“The high cost of both general liability and workers compensation makes it difficult for contractors to satisfy what they need to provide with respect to adequate coverage at a competitive price,” he said.
Kevin Dolan, senior vice president for Alliant Insurance Services Inc.’s construction services in New York said, however, that “the New York construction market is certainly booming,” hitting $48 billion in construction in 2016, $56 billion in 2017, and is projected to be at $49 billion in 2018, with the most recent trends in the last two years seeing commercial and infrastructure outpacing residential.
Policyholders face higher retentions in New York.
“We do participate in New York City general liability projects, but we do it off a multimillion-dollar retention,” said Karen Reutter, head of construction for Zurich North America in Schaumburg, Illinois. “Some markets won’t play in New York, and the ones who do play in the boroughs play at a high attachment point.”
“The standard markets, which have historically been competitive, have either pulled away or now require increased retentions and large collateral outlays from the client,” said Kelly Kinzer, head of construction broking for Willis Towers Watson PLC in its corporate risk and broking segment in Minneapolis.
“Lack of capacity is not stopping work, but clients are taking on more risk through higher retentions and deductibles,” Mr. Dolan said. “Often, they need to prefund these retentions.”
Few insurers back the New York market, and some periodically retreat, sources say.
On any given day, there are only a “handful” of insurers, a half dozen or fewer, writing general liability in New York City construction markets, Ms. Reutter said. “The law is unique,” she said. “It’s really forced insurers out of New York in any meaningful risk transfer manner.”
The lack of stability makes it very difficult for buyers.
“Historically, what you’ll always see is an ebb and flow with carriers and the appetite they have to write in the New York City construction market,” Mr. McCabe said. “From an insured or buyer standpoint, it puts them in a very precarious situation.”
In addition to jury awards, which can run into millions of dollars, defense costs are a substantial burden to insurers.
“What’s happening and what we have seen in the marketplace and what a lot of carriers have expressed is that the costs of defense is really what’s draining,” Mr. McCabe said. “That you will have ongoing litigation that is very protracted and lasts a number of years, and carriers get hit with exorbitant legal fees and it’s draining their resources.”
A policyholder’s financial commitment may extend further than insurance alone.
“Due to Labor Law exposure, clients are not only required to take on significant financial positions but also commit extensive resources to safety,” Ms. Kinzer said.
“Contractors, developers, owners and brokers need to be fully vested in a strong safety culture, top to bottom,” Mr. Dolan said.
Wearable devices can provide construction employers with a ton of valuable information about safety and health risks that their employees are contending with in the workplace, including whether an employee is overheating, slowing down or tired, present in a dangerous location or engaging in risky behavior such as sliding down a banister.