N.Y. Agents, Buyers Report On Contractors Crisis

One of the contractor representatives who testified regarding the lack of affordable commercial general liability insurance was Tony Saporito, from Mechanical Contractors Association of New York. "Our firms represent over 450 New York companies," he told regulators. These firms, he said, are faced with "premium increases of between 200 percent and 400 percent, and they cannot attain proper coverage even with this outrageous cost."

Insurance costs have now become a major factor in the cost of doing business in New York, Mr. Saporito said. He implored regulators that if something isnt done soon to address this crisis, many companies will be forced out of business. "Please heed this call for action," he said.

Jeffrey Zogg, executive director for General Building Contractors of New York State, offered a similar diagnosis for his member companies. "Premiums over the last three years have skyrocketed for the majority of our members by over 300 percent," he said. Whats more, while premiums are soaring, coverage is declining and limits are reducing, with umbrella coverage particularly hard to find.

Mr. Zogg also said contractors insurance costs have risen so high that it has exceeded many of his members profit margins, forcing these companies to consider whether staying in business makes any financial sense.

"Simply put, our insurance market has been in crisis," Mr. Zogg said.

But while many are agreeing that something should be done, New York-based agency groups, as well as a national insurance association, testified during the hearing that adding contractors liability insurance to the residual market is like putting a bandage on a broken system.

Currently, the New York state's residual marketcalled New York Property Insurance Underwriting Association, or NYPIUAfunctions as the states FAIR plan (Fair Access to Insurance Requirements), providing a "market of last resort" for fire, windstorm and extended property coverage.

And expanding this residual market to write commercial liability, in addition to its current function as a market for property insurance, will only worsen the current crisis in the long run, argued Maura Clancy, chairperson at the Independent Insurance Agents & Brokers of New York, based in Syracuse, N.Y.

"This situation is extremely frustrating to our members who are attempting to secure adequate coverage for their clients," said Ms. Clancy, whose association represents some 1,900 agencies. But, she told regulators, "the real culprit"the reason behind increasing claims costs and higher premiumsis New York labor law sections 240 and 241.

These statutesreferred to as the states scaffolding acthold contractors and property owners wholly liable for any injuries resulting at or around a scaffolding site, she noted. "It is the only law of its kind in the country and has created a situation that eliminates the ability of building owners and contractors to defend themselves when a worker falls from any heighteven two feetregardless of the workers negligence," said Ms. Clancy.

This liability standard, she said, places an "unmanageable burden" on insurance providers when they factor in such pervasive risks when calculating insurance rates.

(In Illinois, a similar scaffolding law was repealed in 1994, leaving New York as "the only state that has any law similar to it," explained Steve Schneider, vice president of Midwest region for Washington, D.C.-based American Insurance Association. However, there has been some talk of possibly reinstating the scaffolding law in Illinois, through the efforts of Democratic governor Rod Blagojevich and the Democratic-controlled House and Senate. "There were discussions in the legislature in the 2003 legislative session, but no bill has been introduced yet," Mr. Schneider said. "It will probably be discussed again next year," he said.

James Fenniman, vice chairman of the government affairs committee for Insurance Brokers Association of the State of New York, also told regulators that rather than expanding the residual market to write commercial liability, efforts should be focused on fixing New York labor law sections 240 and 241.

"We have witnessed an increasing problem related to the affordability and availability of commercial liability coverage for the construction industry over the past few years," he said. Mr. Fenniman went on to say that its his organizations belief that the limitation of commercial liability coverage is directly related to New York labor law sections 240 and 241, which force strict liability standards on contractors.

"Whereas we respect limitations the department faces in addressing statutory issues, IBANY believes that without statutory changes, the creation of a residual market within NYPIUA for commercial liability will not solve problems of affordability and accessibility," he argued.

Also testifying at the hearing was Pamela Young, assistant general counsel for the Washington, D.C.-based American Insurance Association, who raised the possibility of a side effect for adding commercial liability insurance to the residual market. She said that while the property insurance underwriting has been a successful operation within the NYPIUA, "the association will have to build itself to become a liability underwriter."

"We cannot assume," she argued, "that this will not involve substantial funds, as management is sought and a framework for operations is put into place. We are concerned about who will bear the expenses." She noted that since NYPIUA is a joint underwriting association and all insurers writing business in New York are assessed to reimburse the fund, using the residual market for commercial general liability will only "shift losses to these carriers."

Furthermore, the liability insurance in the residual market will still be subject to stringent standards of New York labor law sections 240 and 241. "So what has truly been solved?" she asked.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 5, 2003. Copyright 2003 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.