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Having seen the pool of private insurers selling them policies dry up, home builders in New York will provide their own coverage.
“We are taking matters into our own hands,” said Phil LaRocque, executive vice president of the New York State Builders Association in Albany. “There is no available (coverage) product for our members. Price is secondary.'”
LaRocque said New York homebuyers are the ones left holding the bag. He estimated that the cost of new single-family homes or smaller multiple dwellings are $3,000 to $10,000 higher because of the insurance issue unique to New York builders.
While buyers of homes worth $250,000 or more can probably absorb $10,000 extra, LaRocque said an extra $3,000 can make home purchases impossible for people “scraping every penny together” to buy a “starter” home or low-income house.
The new insurer will be called the Reciprocal Liability Insurance Company and will be run through LaRocque’s group. Within two months it should provide coverage for home builders and remodelers for the spring, summer and fall building seasons.
Builders said the last straw came in December, when North American Casualty said it was not going to renew policies for some 250 New York builders when policies expired in 2004. That followed the exodus from New York in 2001 of Great American, which insured about 550 of the state Builders Association’s members.
Those decisions have forced builders to seek insurance through the excess market.
State Sen. Nancy Larraine Hoffmann, R-Onondaga County, helped put builders together with Insurance Department officials to develop the new insurance venture.
“It’s no longer an issue of affordability, the issue is availability,” said Hoffmann. “Insurance just doesn’t exist for home builders. Their last resort is a very creative and brave undertaking to become their own underwriters.”
Insurance companies have long complained that New York laws set the toughest-in-the-nation standards for builders and insurers to defend themselves against liability suits filed by injured workers. Workers are almost guaranteed success in such suits, insurers complain, because evidence rules largely prohibit introduction of mitigating circumstances in injury cases, such as whether workers got hurt because they were drunk or they failed to use safety equipment provided at the work site.
The Democrat-controlled Assembly has refused to loosen the state’s “strict liability” standard, siding with defense lawyers and unions who say the standard protects workers and makes workplaces safer. An analysis of 2001 federal labor statistics by the state Trial Lawyers Association said that New York has the second-best construction workplace safety record among all the states. The group concluded that the “strict liability”standard has to be a major reason.
Martin Edelman, president of the Trial Lawyers Association, said the insurers are refusing to write policies for many smaller builders because they do not have a good safety record. he said the builders association should make site safety professionals available to its members to minimize injuries and prevent the kinds of accidents that end up in litigation, according to Edelman.
“We have to start from the premise, how do we prevent workers from getting hurt in the first instance?” he said.
Even before insurers started abandoning New York, they were charging New York builders three or four times as much for coverage as home builders paid in nearby states, although premiums have also increased throughout the country and the availability of policies has decreased. The National Association of Home Builders said New York is merely one of several states in which home builders are now experiencing “extreme difficulty” obtaining liability insurance.
“The bottom line is that insurers consider builders as a class unprofitable and very costly,” a recent NAHB study concluded.
LaRocque does not yet know the premium levels his new company will have to charge New York builders, but he said they would be comparable to what builders were paying when they could get coverage elsewhere.
LaRocque said builders know they are creating another “deep pocket” that liability lawyers and injured workers will go after.
“We’re hoping it works, we know the risk we’re taking,” he said. “We know that we will take hits.”
The group is also paying for billboards in Albany and radio commercials urging state legislators to ease liability laws.
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