NYC Sidewalk, Lead Paint Laws Create New Exposures

On top of the hard market increases that have pummeled property owners in recent years, at least one broker is alerting customers who own buildings in New York City to the impact that two recent law changes could have on their liability premiums.

Recent changes in New York Citys building codes are placing more liability responsibilities on landlords, as the city shifts liability for sidewalk claims off its shoulders and dramatically toughens responsibility for making sure apartments are free of lead paint.

In a seminar hosted in late January by Kaye Insurance Associates Inc. of New York, a subsidiary of Chicago-based insurance broker Hub International, landlords and commercial property owners learned the changes in their liability responsibility and were given some idea what insurers are thinking about on these issues.

On the sidewalk issue, in September 2003, the city made changes in the law to shift the burden of liability from the city onto commercial property owners after years of paying out millions in dollars for liability settlements, said Alan Kaminsky, an attorney with the law firm Wilson, Elser, Moskowitz, Edelman & Dicker LLP, an insurance defense firm in New York. Building owners, he said, are now responsible for any repairs, for debris in front of their buildings, and for the removal of snow and ice. The law does not apply to residential properties.

The liability shift means that annually, $90 million to as much as $150 million in liability costs for slip-and-fall claims is now the province of the citys landlords and their carriers, said Damian Testa, president of Kaye. His figures include defense costs and hard market insurance premiums.

In a handout from Kaye, the firm noted that claims from sidewalk accidents on the citys 12,750 miles of sidewalks in the past three years cost New York more than $189 million in judgments.

“This was portrayed as tort reform,” said Joseph Strasburg, president of the New York City Rent Stabilization Association, referring to the shift in liability. “This is far from tort reform. All it is doing is putting the responsibility on the shoulders of the public.”

He said the association is considering challenging the legislation in court on a number of questions that need to be resolved, such as the shifting of responsibility from the city to property owners without state approval.

On the issue of lead paint, landlords now have an absolute responsibility for any lead paint exposure found in children under the age of seven, unless they have proven conclusively that the dwelling has no lead paint exposure.

Under a recently passed city ordinance, landlords have to investigate, notify tenants, correct the hazard, and use safe work practices for the removal of hazardous materials in multi-dwellings built before 1978, said Harold M. Shultz, special counsel for the New York City Department of Housing Preservation and Development.

He explained that property owners must be certain that there is no lead paint in the home and get certification.

“If you dont know, you must assume there is lead paint,” said Mr. Shultz.

Property owners, under the ordinance, he continued, must certify the building is free of lead paint when the property is sold. They also must inspect the homes to determine if children seven or younger reside there. If a child resides there, the owner is responsible for testing and ridding living areas and all surfaces that a child can reach of lead paint. All records, he added, must be kept for 10 years after.

John McCarthy, executive vice president and chief operating officer of The Community Preservation Corporation, a non-profit lender for affordable housing, said that under the ordinance, if a child is discovered to have elevated levels of lead paint in his or her system, and there is no documentation that the residence is free of lead paint, it is assumed that the home caused the problem.

“This is a prescription for open-ended tort liability,” he said.

Mr. Strasburg warned that the strict nature of the law would forestall new housing development and push liability insurance rates up.

The law was passed by the City Council in February after overriding the veto of the citys mayor, Michael R. Bloomberg. Mr. Strasburg said the mayor and other city commissioners were very critical of the law and did not want to see its passage.

“This is a dumb thing to do,” he said.

“This is really troublesome, because you want to deal with poisoned children, but this is not the way to do it,” he added.

Another unfortunate outcome of the law, he noted, could result in a violation of civil rights laws, in that landlords might refuse to rent units to families with young children or demand blood tests from immigrants coming from countries where the presence of lead is omnipresent in the environment from pollution.

Looking at insurance solutions, Mr. Testa said insurers are examining the issue and deciding where and how they can provide lead paint coverage. Such coverage is available depending on a set of criteria that includes maintenance, age of the building and territory, but coverage is limited. There are also environmental policies available with various coverage limits, he said.

“The industry is beginning to adjust slowly,” he said. “The industry has set up a process to underwrite it and provide coverage to people they are comfortable with, but they will not provide coverage to people they are not comfortable with.”

However, insurers remain on the fence as legislation becomes more restrictive, despite the drop in claims over the years. He cautioned that if claims do begin to increase, “it could get like asbestos and make it impossible to get any coverage for lead paint.”

After the seminar, Mr. Testa told National Underwriter that on the sidewalk issue, insurers are taking a wait-and-see approach. He said they would probably be more reactive and address the issue with premium rate increases. There still remains premium push-up on the liability side, and “things like this just add to it,” he noted.

“We are just not sure of the enormity of the problem yet,” he said.

The law would probably result in more inspections, and there would be more initiative taken on the part of risk managers and insurers to mitigate exposure, he continued.

Lead paint is an issue that the small commercial residential rental property owners cannot afford to handle on their own, Mr. Testa observed. They will need insurance.

He said there will probably be some coverage available similar to mold insurance, with limits. He noted that insurance on buildings constructed after 1978, when the use of lead paint was discontinued, can have lead paint exclusions in their policies.

He also noted that this is an opportunity for risk managers to begin specializing in lead paint exposure to rental dwellings to help insureds reduce their risk and stay in compliance with the new law.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 27, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.

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NYC Sidewalk, Lead Paint Laws Create New Exposures

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