Sections 240, 241 and 241A of New York State's Labor Law imposes liability on property owners and contractors for employee injuries that fall within the parameters of the law. Section 240 (enacted in 1885) applies to gravity-related injuries caused by falls from an elevation or resulting from being struck by falling objects. Section 241 (enacted in 1896) applies to requirements for flooring and tripping hazards. It also applies to openings for elevator shafts and hoisting shafts, which are required to be enclosed or fenced. 241A (enacted in 1935) requires safety of elevator shafts, hatchways, openings and stairwells in buildings under construction or demolition. While absolute liability is imposed on owners and contractors under 240 and 241A, 241 does take the employee's own negligence into account. It is possible that an action can be brought under multiple sections of the law. Although the laws were designed to protect workers, over the last several years there has been as significant uptick in suits by what could be considered opportunistic plaintiff attorneys. This has resulted in substantial increases in General Liability and Excess premiums for construction risks, and a contraction and shift in the insurance marketplace.
We recently spoke with Ed Pray, president of Hartan Brokerage, Inc., a leader in the construction insurance industry, about the Labor Law and the impact it's having on our industry and contractors in New York. For more than 26 years, New York City-based Hartan has offered a number of creative solutions for contractors, including a comprehensive General Liability program. Throughout its tenure, Hartan has continued to provide stability, competitiveness and innovation in insurance product design to its broker partners and their insureds. Their construction underwriting staff has the leadership and knowledge to understand market indicators, regulations and state legislation to protect an insured's business for sustained growth.
Annie George (AG): Let's discuss how the New York Labor works as it relates to the construction industry.
Ed Pray (EP):"Under most circumstances in all states except New York, if a construction worker is injured on the job, the sole remedy is to file a Worker's Compensation claim for medical expenses and lost wages. In New York State, although the CGL policy does not cover lawsuits for employee vs. employer, an injured employee can sue a project owner or general contractor (GC) under the provisions of Labor Law 240, 241 and 241A claiming that he or she was not provided a safe place to work. The building owner and/or the general contractor often have a sub contract agreement with the injured worker's employer, which provides contractual with a hold harmless and/or additional insured coverage to the owner and/or GC. The owner/GC's insurer will then tender the claim back to the injured workers employer for coverage under their CGL policy."
AG: How has this law affected the insurance marketplace?
EP: "There are an increased number of claims and awards resulting in adverse loss experience. This has led to many insurance carriers exiting the market entirely or changing their underwriting dramatically by reducing the number of acceptable classes or restricting terms. Where there were once approximately 25 carriers writing primary General Liability coverage for construction in New York State, you now have 15. On the surplus lines side, where you once had approximately 20 carriers writing Excess coverage with limits over a $1/2/2 primary, there are now three. What's more, as the markets become more limited, the premiums are becoming increasingly higher."
Ed also explained how not only is the insurance market contracting but the excess carriers are no longer attaching over $1/2/2 limits. "For 30-plus years, carriers have been attaching limits excess of $1 million. Now, in most cases they will only attach coverage excess of $2/4/4 limits. Some contractors, however, are not able to get $2 million limits on their primary policies. This has resulted in bringing back buffer layers and opportunistic carriers looking to grab rates well above expiring."
AG: What type of increases are you seeing?
EP: "Some carriers are delivering 200-400% rate increases, particularly for the hardest hit classes - high-hazard construction risks such as the scaffolding trade, roofers, and those doing masonry and water proofing on a building's façade - contractors involved with exterior heights. It has come to a point that some construction companies are unable to afford the insurance coverage and have been forced to shut down.
"If you compare the cost for primary General Liability coverage for a contractor in New York with a contractor that has the same operation and the identical amount of losses who works exclusively in New Jersey, that contractor's rate would be anywhere between 15-25% of the New York rate."
AG: Where do you see the marketplace in the future?
EP: "We do expect the marketplace to settle over the next 12 months. The challenge right now is that you have opportunistic companies that are just entering the market and those that are leaving so there is instability in terms of knowing which markets will be in place. We hopefully will see a more defined market in the next year with continued rate strengthening, which will bring in some stability in the marketplace."
AG: How has Hartan continued to grow in this market?
EP: "First, we know and understand the construction industry, and are a long-term player with long-standing relationships and partnerships. We have a seasoned staff on both the brokerage and underwriting sides of the house. They can competently address any issue a broker may have.
"What's more, our exclusive General Liability program has been active for more than 13 years and is underwritten for best-in-class risks - general contractors and artisans such a Drywall, Electricians, HVAC, and Plumbers. We understand there will be claims, but on average, if we do our job and underwrite correctly, we have shown that we can make money on the book of business. Our program is available in 25 states, and we can also broker coverage through our other trading carrier partners in 47 states."
For more information about Hartan's construction programs, please contact Ed Pray or Susan Percoco at 212.314.9600.