There has been much discussion recently about the antiquated New York Labor Law 241 and its effect on the availability and cost of insurance coverages for contractors. The fear is that smaller contractors will get priced out of purchasing the proper insurance coverages and only legislative reform could bring change. Reform has been proposed several times, and in June it was again shut down in the State Assembly. The financial and political reasons as to why this happened are beyond the scope of this article. The negative effects of this law, however, are compounding and are having real and serious consequences on the New York real estate industry costs and business practices.

Who’s Liable?

New York State Labor Law Sections 240, 241 and 241A impose liability on property owners and their contractors for injuries to contractor employees resulting from falls, falling objects, or for the failure by responsible parties to control hazards. Normally, if employees are injured on the job, their sole remedy against their employer is to file a claim for Workers Compensation benefits. Workers Compensation is a no-fault system that provides medical benefits as well as lost wages for injuries that occur on the job without having to bring action against the employer. However, under labor law, injured workers can also seek to receive additional compensation from the property owner by claiming that the owner failed to provide a safe work environment.

The commonly accepted approach to deal with labor law in construction projects has been contractually transferring risk from the property owner to contractors (and their subcontractors). This is accomplished by requiring contractors to sign hold harmless agreements and agree to have the contractor’s liability carrier provide defense and indemnity to the property owner should a suit be brought against them. This has worked as long as the contractors’ insurance carriers were willing to take on this risk.

Fewer Carriers

The contractors’ insurance market has dwindled to a mere half a dozen carriers who still actively provide the proper coverages and at a cost under $100,000. The carriers, however, have been extremely selective with strict guidelines; qualifying is a problem for many contactors. With enormous premium increases, (quadrupling is not uncommon) many contractors just don't have the means to afford the proper coverage. So here's the wrinkle that puts owners, co-op and condo boards and managing agents in jeopardy of being held liable in the event of an accident on their premises. Contractors and subcontractors in many cases are just not obtaining the proper insurance and the property owners don't have the mechanisms or the manpower to make sure the contractors are in compliance. The certificate of insurance provided by the contractor doesn't provide details of the policy and that's where most managers and property owners stop.

Protect Yourself

How can owners, boards and property managers protect themselves? Start by implementing procedures for dealing with construction projects and contracts. Then make sure to have the most up-to-date contract in place with proper insurance requirements including a liability policy that does not exclude labor law claims. Importantly, have the contractor provide full copies of their insurance policies. An insurance rider needs to be signed by contractors hired by the owners, renters and property managers. A sample agreement for customers can be viewed at www.ffbinsurance.com/constructionagr1.

It is important to secure from the contractor the certificate of insurance with the

owner, property manager and/or board and their lenders listed as additional insureds.

Attention should be paid to the name, the insurance companies listed, the adequacy of limits, the policy period, and the description of operations. Also, it is wise to check their respective AM Best rating to make sure they are rated A-VII or better, which is the

minimum standard required by most lenders, and to review the policies, which is a lot more difficult than said. This part is probably best left to an attorney or insurance broker if they are savvy and experienced in this area. While the language may seem to provide adequate coverage, in fact, it may not. There are companies, such as ours, that offer this service for a fee or as part of their insurance brokerage services.

Review Your Policies

If after a review of the contractor’s policies it is found that they are not in compliance, the contractor and subcontractors should not be allowed on the site until they have the proper coverage or a new contractor is selected who has the proper insurance. Same goes for the contractors hired by the residents. [It is helpful to develop of list of approved contractors to save time and expense.]

But, of course, those contractors with the proper insurance coverages are a lot more expensive. Owners, property managers and boards should be prepared to spend more on construction projects and anticipate the ensuing havoc of complaints from unit-owners, shareholders or renters. Everyone can also complain to their state assemblyman about the situation they have so far refused to correct.    

Eugene B. Podokshik is president and CEO of First Fidelity Brokerage a leading independent insurance broker with expertise in the real estate and construction markets.

Who’s Liable?

New York State Labor Law Sections 240, 241 and 241A impose liability on property owners and their contractors for injuries to contractor employees resulting from falls, falling objects, or for the failure by responsible parties to control hazards. Normally, if employees are injured on the job, their sole remedy against their employer is to file a claim for Workers Compensation benefits. Workers Compensation is a no-fault system that provides medical benefits as well as lost wages for injuries that occur on the job without having to bring action against the employer. However, under labor law, injured workers can also seek to receive additional compensation from the property owner by claiming that the owner failed to provide a safe work environment.

The commonly accepted approach to deal with labor law in construction projects has been contractually transferring risk from the property owner to contractors (and their subcontractors). This is accomplished by requiring contractors to sign hold harmless agreements and agree to have the contractor’s liability carrier provide defense and indemnity to the property owner should a suit be brought against them. This has worked as long as the contractors’ insurance carriers were willing to take on this risk.

Fewer Carriers

The contractors’ insurance market has dwindled to a mere half a dozen carriers who still actively provide the proper coverages and at a cost under $100,000. The carriers, however, have been extremely selective with strict guidelines; qualifying is a problem for many contactors. With enormous premium increases, (quadrupling is not uncommon) many contractors just don't have the means to afford the proper coverage. So here's the wrinkle that puts owners, co-op and condo boards and managing agents in jeopardy of being held liable in the event of an accident on their premises. Contractors and subcontractors in many cases are just not obtaining the proper insurance and the property owners don't have the mechanisms or the manpower to make sure the contractors are in compliance. The certificate of insurance provided by the contractor doesn't provide details of the policy and that's where most managers and property owners stop.

Protect Yourself

How can owners, boards and property managers protect themselves? Start by implementing procedures for dealing with construction projects and contracts. Then make sure to have the most up-to-date contract in place with proper insurance requirements including a liability policy that does not exclude labor law claims. Importantly, have the contractor provide full copies of their insurance policies. An insurance rider needs to be signed by contractors hired by the owners, renters and property managers. A sample agreement for customers can be viewed at www.ffbinsurance.com/constructionagr1.

It is important to secure from the contractor the certificate of insurance with the

owner, property manager and/or board and their lenders listed as additional insureds.

Attention should be paid to the name, the insurance companies listed, the adequacy of limits, the policy period, and the description of operations. Also, it is wise to check their respective AM Best rating to make sure they are rated A-VII or better, which is the

minimum standard required by most lenders, and to review the policies, which is a lot more difficult than said. This part is probably best left to an attorney or insurance broker if they are savvy and experienced in this area. While the language may seem to provide adequate coverage, in fact, it may not. There are companies, such as ours, that offer this service for a fee or as part of their insurance brokerage services.

Review Your Policies

If after a review of the contractor’s policies it is found that they are not in compliance, the contractor and subcontractors should not be allowed on the site until they have the proper coverage or a new contractor is selected who has the proper insurance. Same goes for the contractors hired by the residents. [It is helpful to develop of list of approved contractors to save time and expense.]

But, of course, those contractors with the proper insurance coverages are a lot more expensive. Owners, property managers and boards should be prepared to spend more on construction projects and anticipate the ensuing havoc of complaints from unit-owners, shareholders or renters. Everyone can also complain to their state assemblyman about the situation they have so far refused to correct.    

Eugene B. Podokshik is president and CEO of First Fidelity Brokerage a leading independent insurance broker with expertise in the real estate and construction markets.