Frustrated New York Contractors to Build Own Liability Insurer

While liability policies for builders and related trades in New York remain elusive, the state builders association has decided to form its own insurance provider to fill the void.

Driven by a lack of availability of liability insurance, the members of the New York State Builders Association (NYSBA) are forming the Reciprocal Liability Insurance Company. This new insurer will run through the association much like a mutual insurance company where members, who are also the subscribers, provide the capital.

“Our members will be paying premium, plus the first year going in, they will make a capital contribution to provide the reserve and surplus needed to meet the insurance department’s requirements,” said Phil LaRocque, NYSBA’s executive vice president.

He would not disclose the amount of capital the group will have. The association will use an unnamed reinsurance company to help with the underwriting.

Twenty-five insurance agencies across the state of New York that already have a book of business with the members will broker for them. Marsh USA has been subcontracted for management services as a third party administrator and has consulted NYSBA from the beginning of its venture into insurance.

According to LaRocque, the lack of liability coverage stems from a law unique to the state of New York called “Labor Law section 240,” more commonly referred to as the “Safe Place to Work Act.”

Sections 240 and 241 of the New York State Labor Law establish that contractors are liable for virtually any gravity related injuries suffered by a worker on a job site. The law says that this liability is “absolute” and that a worker’s responsibility shall not be considered when determining fault. It does not matter that the employee ignored the company’s safety policy or directions from a supervisor. The contractor or owner is liable even if the employee is intoxicated, drug induced or in the process of committing a crime when the injury occurred. New York is the only state with such a liability standard.

The NYSBA believes any worker legitimately injured on the job due to negligence by the builder or contractor should be compensated, but feels the current law does not provide fairness in the face of a lawsuit.

The builders maintain that this law has significantly added to general liability losses in New York State and has contributed to the current insurance-availability crisis.

“Carriers have absorbed substantial losses due to [law 240] because there is no way to defend the builder … 95 percent of these cases are settled out of court because the insurance defense lawyers say, ‘This is a strict liability—we can’t introduce certain evidence, we have a loser—let’s just settle up and save some legal fees.’ The other times they get a summary judgment against them,” said LaRocque.

NYSBA maintains that several insurers have ceased offering product to builders and related trades in New York due to excessive loss costs. According to the American Insurance Association, New York insurance carriers’ loss claims costs exceeded those in neighboring states by as much as 500 percent (the study was conducted in Nov. 2001).

“[Insurance carriers] are leaving in droves … we are down to a few carriers, mostly excess, who are offering product. Some have coverage gaps, some don’t offer bodily injury coverage, there are a lot of warps and holes in what is left. And those companies that are left are barely hanging on, some have even been downgraded,” said LaRocque.

The builders generally feel they have no other choice but to “take matters into their own hands.” They intend to administer stricter loss control through safety engineering and continue to lobby hard to change Labor Law 240 to a “negligent standard” like that in the other 49 states.

This law has evolved plenty over the years. Initially, it was intended to protect workers when there was no workers’ comp program by providing builders with an incentive for safer worksites. Today, in addition to workers’ comp, there are national health and safety standards for construction sites and such organizations as the Occupational Safety and Health Administration (OSHA).

In response to the argument that this law motivates builders to have a safer worksite, LaRocque said, “OSHA’s statistics clearly show that [New York State] is no better or worse with regard to safety than any other industrialized state.”

The reform of this bill is being stifled by what he describes as “trial lawyers protecting the status quo of a 33.3 percent contingency on a slam-dunk case.” He adds, “All they need to introduce are a few facts—one, the injury occurred on a construction site—two, the worker was elevated and the injury was gravity related and—three, prove a contractor was around to win the case and get their 33.3. Most of the time, these fact patterns do exist … and this is on top of workers’ comp, not in lieu of.”