The construction industry may not make a major comeback any time soon in New York State, where labor laws as applied to the construction insurance business are doubling rates and driving carriers away, the experts say.
Insurance rates in the state have risen steadily over the past five years, since the New York legislature enacted statutes to its Workers’ Compensation Law that gives broader rights to construction employees who are injured after July 1, 2007.
In the past year, however, those rates have doubled.
That’s because Construction-related Workers’ Comp claims from the early 2000s are just now hitting insurers’ balance sheets, and insurance carriers are starting to see the results of projects done in 2003 and 2004, says Chris Smith (pictured at right), vice president and managing director for Turner Surety and Insurance Brokerage (TSIB) of Woodcliff Lake, N.J.
Liability claims are coming in “so much higher than anybody anticipated,” he says. “It was not unheard of to have minor claims like a shoulder injury or back strain costing millions of dollars.”
“Insurance companies are having a difficult time insuring anything in New York,” Smith says.
It’s the one area of construction where having an increase in business can have a negative impact because every build that’s estimated at more than $100 million has to, by law, add 10 percent for insurance. While construction insurance costs in New York State were about 4-5 percent of total project costs last year, today any large construction project could require insurance costs that are as much as 10-12 percent of the build, he says.
“They’re doubling from a year ago. All the insurance carriers have stopped doing coverage,” Smith says. “Right now there is a big hole in the marketplace for construction companies to get insurance in New York.”
“It’s a gigantic marketplace and you can’t go without it,” he adds. “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 employee safety—allow workers to sue property owners and/or their agents, who are typically general contractors, for injuries sustained at construction sites.
The move was meant to help protect workers, but it has since taken a “180-degree turn” and been “completely overblown” to the point where a carrier or general contractor that gets a Workers’ Comp claim “will file a General Liability claim every time because the chance of filing a suit are that good,” Smith says.
“We’ve seen the challenge really in the last five years; a lot of times insurers don’t see the effect of that until 6-8 years later,” 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 those types of verdicts to go on,” Smith says.
AVOIDING NEW YORK
Karen Rice, vice president of construction claims at XL Group North 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 construction issues on falls from ladders, without having to prove fault,” Rice says.
The law places that liability on the part of the owner and/or contractor for any type of fall from any height; so, either a worker falling or something falling on top of a worker can merit a claim, Smith says. The insurer ends up in a position where there are few avenues to defend against claims.
The restrictions are so unappealing that primary carriers won’t give excess limits, and Excess & Surplus companies won’t come down on pricing, Smith says.
“New York [state] right now is close to a crisis—as much as you can be—because of just the labor law,” Smith says. “The general contractor can say you didn’t provide a safe worksite.”
TSIB and its sister company, Turner Construction, have taken on projects 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 the tallest building in the Western Hemisphere.
When the WTC project started in 2009, insurance pricing was a bit more reasonable, Smith says. Insuring the Freedom Tower job four years ago was doable: “Pricing now would be enormous, and you would have to take some serious self-insurance on it,” Smith says. “And that would be a challenge.”