Contractors in New York often complain about the ridiculous premiums they pay. Without indulging the whining and complaining too much, I agree. It is out of hand, liability premiums are at all-time highs and putting contractors out of business.
Contractors in New York pay TEN TIMES what contractors in other states typically pay for General Liability Insurance. 10X what similar business would pay in Illinois.
While you continue to cry over your latest insurance bill let me explain why you are paying so much just for liability insurance.
Back in May of 1885, the state passed New York Labor Law 240, this was done at the time to protect workers from injuries while working on the skyscrapers of the day. At the time this was a valid thought process and valuable protection for the workers in the construction industry. Many states also had similar laws.
However, over time laws changes and courts started interpreting the law differently. In turn, all states except for New York repealed these “scaffold laws” since better legislation was put in place to protect workers. Mainly the workers’ compensation programs seen throughout the US including New York.
The wonderful litigious state of New York didn’t repeal the law, instead we doubled down. In 1948 the New York Court of Appeals took an even firmer stance removing the option of using comparative negligence as a defense. Meaning regardless of who’s fault the injury is… YOU are 100% responsible as the building owner or construction firm.
So maybe you are wondering how are you 100% responsible for a worker’s gravity related injury? For example, if you provide all the safety equipment possible, but your worker has an accident you are still 100% liable thanks to this law.
For insurance companies this creates a huge risk, your company might be the safest and most responsible construction company ever. With daily toolbox talks, weekly safety meetings, and a designated safety supervisor, but guess what, when your worker ignores all of the safety training falls from a ladder he can still sue YOU!
The only possible out is if you can prove the incident was 100% the fault of the employee…. Good LUCK! Starting to see how this insanity can drive up insurance costs?
If your business operates in NYC especially the Bronx it gets even worse. The courts are a disaster in the Bronx. They have ruled favorably for injured workers more often than not. These biased courts cost the insurance company and your construction firm even more than the rest of New York.
Now imagine for a minute you were the CEO of the insurance company instead of your construction firm.
As the CEO of the insurance company your primary goal is to make money for the company and shareholders. This is done by writing insurance policies, and taking in more premiums than you pay out in claims, simple right?
Well it’s not so simple in New York. With construction firms being held responsible regardless of employee negligence; it is a struggle to remain profitable.
It is nearly impossible to underwrite and properly rate a policy when an insurance claim can be filed for millions of dollars when the construction firm did NOTHING WRONG.
For many insurance company CEO’s they look at construction insurance in New York as a total loss and stop writing liability policies. For the few brave CEO’s that attempt to write policies it is a constant struggle to remain profitable.
Rate hikes are inevitable as the insurance companies are trying to remain profitable, while being held to an impossible standard.
Putting your construction hat back on, imagine if your firm is hired to remodel a kitchen. Everything goes great, materials are picked, installed everything is perfect. But wait, the client decides they don’t like the cabinets or the granite that they approved. And because they don’t like them anymore your firm needs to rip them all out and replace them, at NO COST!
Insanity right? How would you bid a job if at any given time the client could change their mind and you had to eat the cost?
I know this example isn’t perfect, but the concept is the same. Adequately pricing something when you are held responsible for something that isn’t your fault is unreasonable.
Don’t get me wrong, the premiums they charge are in the stratosphere! But if you look at their balance sheets, it’s the insurance companies are feeling the pain from the unreasonable system New York Labor Law 240 has created.
To summarize, New York Contractors are paying way too much in General Liability premiums because of an outdated law.
This outdated law stuffs the pockets of attorneys and lobbyists keeping the law on the books.
How can the problem be fixed? Get involved, instead of complaining to anyone who will listen about your insane premiums, share the knowledge and discuss how contractors need to work together to fix this. Stratospheric insurance premiums are not going to magically reduce.
Contractors need to work together to fix the problem. Every time you start to complain about that big check you write to the insurance company, do two things. First, write a letter to your state representatives here Second, tell one other contractor to do the same. One lonely contractor cannot get this law changed.
PS If you think you’re paying too much, or just want to chat about construction insurance give me a call. I know it’s weird, unusual and maybe slightly disturbing, but I enjoy talking about contractors insurance.
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