The State of the New York Insurance Market

Enacted in 1885, New York Labor Law § 240(1) was created to grant construction workers a legal avenue to recover for injuries resulting from workplace accidents which were on the rise at the time since worker safety was not a priority and modern safety equipment did not exist.  Similar laws were passed by other states with the same goal but have since been modified or repealed with New York now the only state with a strict liability statute such as Labor Law § 240(1) on its books.

1. 01

   New York Labor Law § 240(1)

   • Created to grant workers a legal avenue to recover for injuries resulting from workplace accidents.
   • Similar laws passed by other states with the same goal have since been modified to allow for comparative fault or repealed.
   • NY is the only state with a strict liability statute (i.e., Labor Law § 240(1)) remaining on its books.
   • Commonly referred to as the “Scaffold Law,” Labor Law § 240(1) imposes absolute AKA strict liability on owners, contractors, and their agents for all “gravity related” injuries resulting from the lack, or inadequacy of, safety devices such as ladders, scaffolds, hoists, pulleys, braces, and more.
   • The definition of a gravity or elevation-related hazard continues to expand harming owners, contractors and their agents which have been the victims of unfavorable Court decisions and the coinciding increased cost of construction (and insurance).
   • NY courts continue to reduce the vitality of the two defenses defendants have to a 240 claim—sole proximate cause and recalcitrant worker.

2. 02

   Rising Verdicts, Inflation & Impact to Insurance

   • The expansion of Labor Law § 240(1) has coincided with a significant rise in verdict and settlement values for New York construction claims which has been amplified by the backlog in the court system and trials continuously postponed due to COVID-19.

   $4.9M Settlements in those cases averaged about $4.9 million

   • The rise of “nuclear” verdicts has coincided with a drastic increase in settlement values in Labor Law cases. (8 of the top 20 personal injury settlements in 2021 involved Labor Law claims.  Settlements in those cases averaged about $4.9 million and ranged from $3 million to $11 million).
   • Third-party litigation funding and predatory lending has also gotten worse in recent years resulting in large liens/payments owed to lenders.

   $1M Labor Law 240(1) claim will settle for above $1 million

   • Information from WTW’s carrier partners reflects an increase in both claims frequency and severity over the past five years, with settlements doubling in value. A typical Labor Law 240(1) claim will settle for above $1 million. Where a neck or back surgery is involved, the claim value is between $2 million -$3 million or more.

3. 03

   Claim Closure

   • An injured worker has 3 years from the date of loss to file a personal injury lawsuit in NY.  A typical Labor Law case is litigated for an average of 3.5 years.
   • Where there are complex liability or damage issues and/or multiple defendants/insurance carriers involved, the life of a case can be prolonged further.
   • The backlog in the Court system has been exacerbated further due to COVID-19; prolonged delays in case resolution are the norm, especially where there has been award of summary judgment triggering interest running at 9% per year and diminishing any incentive for the plaintiff to settle.   
   • Of note, a 2021 survey published by Thomson Reuters Institute, confirmed that the average backlog in state and local courts increased  between 2020 and 2021.

Completed projects

4. 04

   Collateral return & Consolidated Insurance Programs (“CIPs”)

   • Carriers cannot take credit risk and need to remain sufficiently collateralized for a conservative outlook on where claims may ultimately develop.
   • For several years following the completion of a project there is significant volatility in predictions of ultimate claims development.
   • Carriers set reasonable reserves at the outset of a claim; however as detailed above in the typical New York Labor Law claims environment potential damages often escalate and carriers need to increase the reserves by significant amounts as cases progress.
   • CIP programs typically include a 6 year tail, post expiration of the policy for Completed Operations Losses which must be contemplated in carrier reserves.

Future projects

5. 05

   Generally

   • Risk transfer will remain challenging and expensive no matter how it is structured.
   • Many subcontractors struggle to (and often don’t) obtain appropriate coverage.
   • CIPs continue to be the “gold standard” for insuring individual projects as they allow the owner or general contractor to procure a program for the entire project, ensuring sufficient coverage for all contractors, while benefiting from economies of scale. CIPs are typically utilized for large projects ($300M or greater); they can be used on smaller projects, but the financial benefit is reduced on such projects due to large retentions and collateral requirements.
   • Smaller projects rely on appropriate risk transfer to subcontractors.
   • Regardless of structure, general contractor (GC) selection, loss control and claims management are paramount to procuring an insurance program with favorable terms and protecting yourself from the adverse financial impacts that result from Labor Law losses.

6. 06

   Why GC selection matters

   • Carriers underwrite your general contractor’s NY experience and perceived ability to complete the project safely. While carriers may offer a “discount” for utilizing best-in-class GC’s with proven track record, commitment to safety and use of AI and other technologies, the selection of a less proven contractor may preclude carriers from even offering terms. 
   • In addition, where a combined owner-GC project specific program is utilized and/or an Owners Interest policy pursued, GC selection is crucial to not only minimize losses but also for the successful pursuit of risk transfer to downstream entities when claims do occur. 

7. 07

   Loss control & claims management

   • "Success" in the context of a Labor Law 240(1) claim often means putting forward enough evidence even if it merely portrays a conflicting account to plaintiffs in the hopes of creating a triable issue of fact sufficient to defeat plaintiff's summary judgment motion leaving liability to be decided at trial (avoiding interest running at 9% per year under NY statutory law).
   • As such, loss prevention and mitigation efforts are of paramount importance.
   • The goal is to eliminate or at least reduce accidents through loss control and site safety measures.
   • When accidents occur, early investigation and claim management is key.  This requires incident response plan that is communicated before accident/incident occurs.  Also, documented loss prevention measures such as pre-kick off safety trainings, minutes from safety meetings with signatures of workers in attendance, logs of all toolbox talks, securing affidavits from foremen, supervisors and co-workers who can attest to conditions on site at time of loss, safety instructions given to injured worker not only leading up to accident but also to establish a pattern of adherence to safety standards onsite. 

8. 08

   Large projects (CIPs)

   • Traditional wrap-up/CIPs for primary and excess capacity remains difficult, as there are limited risk transfer opportunities. Some admitted/retail markets are selectively willing to support primary GL offerings (with retentions often starting upwards of $2 million -$3 million or more per occurrence). 
   • Most insurers require deductibles that match the primary limits of $5 million per occurrence.  Most excess markets require a minimum of a $5 million GL attachment point and, in many cases, will only offer excess capacity at $10 million or higher while closely managing overall capacity. 
   • Creative and innovative solutions continue to evolve while the industry continues to seek solutions to the Labor Law 240 claims crisis.  Evidence of successful and robust loss control and claims mitigation practices are pre-requisites for consideration.

Smaller project (Non-CIPs)

9. 09

   Importance of risk transfer in the absence of a CIP

   • In the absence of a CIP, coverage can be provided by either an Owner’s Interest policy or an Owner / General Contractor project specific policy.
   • Risk transfer via contractual indemnify and additional insured status is of utmost importance. 
   • NY law prohibits a party from being indemnified for their own negligence; contractual indemnity is often a factual issue not determined until years into litigation.   
   • Risk transfer is critical to getting a tender accepted and/or defense costs picked up at outset of suit.  

10. 10

    Importance of policy vetting

    • Many subcontractors (and some General Contractors) purchase insurance through the Excess & Surplus Lines Marketplace which is not as highly regulated as licensed insurers who must obtain approval of forms/rates etc. As such, problematic exclusions are often commonplace.
    • It is imperative to ensure all Additional Insureds are scheduled to the AI endorsement(s) for both ongoing and completed operations and that coverage to the additional insured(s) is as broad as that provided to the named insured.
    • Other problematic exclusions include:
      • Labor Law Exclusions;
      • Removal of insured contract exception to employer liability exclusion;
      • Broad Project Specific & CIP/Wrap-Up Exclusions;
      • Height Exclusions;
    • Many Owner’s Interest & Owner / GC policies require a formal vetting process, often by a contractually mandated vendor as a pre-requisite for binding.

Successful risk transfer, loss control measures and claims management practices are critical for attracting underwriting/carrier support on your future projects and the favorable negotiation of terms and pricing.

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Successful risk transfer, loss control measures and claims management practices are critical for attracting underwriting/carrier support on your future projects and the favorable negotiation of terms and pricing.”

Alicia Sklan | Account Executive, North America Construction