From the Empire State Building to the Freedom Tower and the Hudson Yards project, New York’s construction industry has earned a global reputation for innovation. That vibrant spirit, however, has been dampened by a unique labor law dating back to the 1880s governing falls at construction sites. Commonly referred to as the New York’s Scaffold Law, this section of the Labor Law has driven overall construction costs higher, sent insurance premiums soaring above levels for other states, and led some major carriers to leave the market altogether. Those challenges make it imperative to work with brokers specializing in this complex and constantly changing market.
New York’s Labor Law Section 240, first enacted in 1885 and revised over the years, imposes absolute liability on construction companies, property owners or contractors for accidents involving falls at construction sites. The scaffold law’s companion, Labor Law 241, targets safety on the ground. Since Illinois repealed its own scaffold law in 1995, New York is alone among the states with such a law. Despite that law, the New York City construction market has been booming in recent years although 2019 has seen a cooling off.
The impact of the scaffold law can be seen in insurance premiums that may be multiple times higher than those outside New York. The law was estimated to have added up to $400 million in additional costs associated with the replacement of the Tappan Zee Bridge across the Hudson River (source). The overall costs of the scaffold law for New York taxpayers were estimated at $785 million annually in a study released in 2014 (source).
With settlements in scaffold law cases routinely reaching into the millions of dollars, the number of claims has risen sharply over the years. Roughly a quarter of those claims target public entities. As settlements reach into the millions of dollars, claims deplete higher limits of insurance programs, making excess markets more cautious. Excess carriers, for instance, are often requiring twice the normal limits on general liability coverage, seeking $2 million per occurrence, $4 million aggregate and $4 million products and completed operations coverage.
Some carriers that have been hit with high claims in recent years have pulled out of the market altogether. Remaining carriers have become highly selective about the risks they will insure and are imposing more exclusions to limit their own exposure. Obtaining coverage with fewer exclusions can prove expensive.
While many projects are insured under wrap-up programs, trade contractors may have a difficult time securing the coverage required to participate in the wrap-up. Trade contractors in New York may be paying 7 to 10 percent of their revenue in insurance costs compared with 3 to 5 percent elsewhere in the country. Higher hazard trades may have to turn to London markets for coverage.
To reduce claims, carriers are stressing safety and may require full-time safety personnel on job sites. Insurers are also requiring trade contractors to review the insurance policies of the subcontractors they hire to make sure they have adequate coverage in the event of a claim. For general contractors, that makes it crucial to ensure that all subcontractors are properly qualified for the job and have obtained the appropriate insurance.
New York’s Scaffold Law has not only driven insurance rates sharply higher, it also makes it more difficult to obtain adequate insurance due to the growing number and rising costs of claims. With fewer carriers writing New York construction coverage and the remaining ones adding exclusions and seeking even higher rates, it’s crucial to work with a CRC Group producer who understands and specializes in this complex market. Getting the right coverage can be a key component of a successful project.
Contact your CRC Group producer for more information.
- Robin Sheridan is a Vice President in CRC’s Long Island, NY office and a member of the casualty practice group.
- Michael Yovino is a Senior Vice President in CRC’s Long Island, NY office and a member of the casualty practice group.