The construction industry may not make a major comeback any timesoon in New York State, where labor laws as applied to theconstruction insurance business are doubling rates and drivingcarriers away, the experts say.

Insurance rates in the state have risen steadily over the pastfive years, since the New York legislature enacted statutes to itsWorkers' Compensation Law that gives broader rights to constructionemployees who are injured after July 1, 2007.

In the past year, however, those rates have doubled.

That's because Construction-related Workers' Comp claims fromthe early 2000s are just now hitting insurers' balance sheets, andinsurance carriers are starting to see the results of projects donein 2003 and 2004, says Chris Smith (pictured at right), vicepresident and managing director for Turner Surety and InsuranceBrokerage (TSIB) of Woodcliff Lake, N.J.

Liability claims are coming in “so much higher than anybodyanticipated,” he says. “It was not unheard of to have minor claimslike a shoulder injury or back strain costing millions ofdollars.”

“Insurance companies are having a difficult time insuringanything in New York,” Smith says.

It's the one area of construction where having an increase inbusiness can have a negative impact because every build that'sestimated at more than $100 million has to, by law, add 10 percentfor insurance. While construction insurance costs in New York Statewere about 4-5 percent of total project costs last year, today anylarge construction project could require insurance costs that areas much as 10-12 percent of the build, he says.

“They're doubling from a year ago. All the insurance carriershave stopped doing coverage,” Smith says. “Right now there is a bighole in the marketplace for construction companies to get insurancein New York.”

“It's a gigantic marketplace and you can't go without it,” headds. “It's just unheard of. How long can you go on like that?”

New York's Labor Laws 200, 241(6) and 240(1)—concerning employeesafety—allow workers to sue property owners and/or their agents,who are typically general contractors, for injuries sustained atconstruction sites.

The move was meant to help protect workers, but it has sincetaken a “180-degree turn” and been “completely overblown” to thepoint where a carrier or general contractor that gets a Workers'Comp claim “will file a General Liability claim every time becausethe chance of filing a suit are that good,” Smith says.

“We've seen the challenge really in the last five years; a lotof times insurers don't see the effect of that until 6-8 yearslater,” Smith says. So carriers that had projected claims of “X”dollars are now seeing those claims coming in 9 years later at“huge multiples above that.”

“The legal and judicial environment in New York allows thosetypes of verdicts to go on,” Smith says.

AVOIDING NEW YORK

Karen Rice, vice president of construction claims at XL GroupNorth America's LA office writes construction business nationwide,“but we try to avoid New York because of its labor law,” she says.It's “very quirky” and “extremely expensive.”

“It has a strict liability component that addresses constructionissues on falls from ladders, without having to prove fault,” Ricesays.

The law places that liability on the part of the owner and/orcontractor for any type of fall from any height; so, either aworker falling or something falling on top of a worker can merit aclaim, Smith says. The insurer ends up in a position where thereare few avenues to defend against claims.

The restrictions are so unappealing that primary carriers won'tgive excess limits, and Excess & Surplus companies won't comedown on pricing, Smith says.

“New York [state] right now is close to a crisis—as much as youcan be—because of just the labor law,” Smith says. “Thegeneral contractor can say you didn't provide a safe worksite.”

TSIB and its sister company, Turner Construction, have taken onprojects at the new World Trade Center project in lower Manhattan:a transit hub, an underground retail outlet, and Tower No. 2.Another contractor is building the Freedom Tower, set to be thetallest building in the Western Hemisphere.

When the WTC project started in 2009, insurance pricing was abit more reasonable, Smith says. Insuring the Freedom Tower jobfour years ago was doable: “Pricing now would be enormous, and youwould have to take some serious self-insurance on it,” Smith says.“And that would be a challenge.”