Last year I was contacted by a gentlemen from the New York City Department of Buildings polling me for what the potential impact would be to the NYC Builder Developer if they mandated certain limits of NY Construction General Liability. Let say that their first draft was much, much worse than what they came out with last week. I am glad we were able to talk some sense into them.
LET’S BREAK THIS DOWN BY REQUIREMENT , THEN COST :
Genesis : The thought is if there is a Tower Crane on site, the city wants to be sure there is more than $10 million of insured capital to protect the site from a catastrophic event. One of the many issues that were discovered after the two crane collapses in the Manhattan was how under insured each of those two projects were. The destruction, and liabilities are calculated at over $100 million in loses however the NY Construction General Liability that was purchased by the G.C. / Developer was $10 million, woefully short. That is why the Department of Buildings is requiring $80 million which in the spirit of fairness and objectivity , having witnessed my share of construction accidents , their position is correct here as it relates to Tower Cranes. As for the rest i reserve judgment.
Cost Breakdown: This methodology applies across the board to all of the various New York City Department of Buildings Requirements. Essentially there are two components of the requirement by the New York City Department of Buildings.
New York City Construction Project Specific General Liability Insurance V.S. New York City Construction Practice General Liability Insurance
1) The requirement that the policy be a “New York City Construction Project Specific General Liability” , and not a “NY Construction General Liability Practice Policy” . The difference is that a “New York City Construction Project Specific General Liability” is essentially vertical liability insurance, meaning it is only covering that specific project ONLY, usually limited geographically to a certain distance beyond the perimeter of the job site, thus it’s vertical . Most NY Construction firms NY general liability insurance extends out horizontally to any and all projects or work being done by the construction firm which is the province of a NY Construction General Liability Practice Policy.
There several issues Construction firms need to be aware of as they move from practice policies to Project specific policies:
* Geographically limited to within a certain distance from the job site, usually 100 feet. Ideally you want to expand this as much as possible. I wrote a piece highlighting how a vendor brought suit under the NY Labor Law because a driver of a concrete truck fell while waiting in line over a 100 feet outside the job site. For more info on this topic read, NY Concrete Worker Brings Suit For Injury Away From Job Site.
*TAIL COVERAGE for NY Construction Products & Complete Operations Liability Coverage must be contemplated. Once the Project is done, Certificate of Occupancy issued, punch list completed , you as the New York General Contractor, NY Developer still have a major exposure for ” NY Products & Completed Operations Liability Coverage”. Example the flashing fails on a building you built 3 years after it was put to it’s intended use. It’s determined the flashing was installed incorrectly, or worse, not at all (that never happens) resulting in moisture permeating the building envelope. That my friends is an example of a products & completed operations. Critical that when you purchase New York City Construction Project Specific General Liability you buy tail coverage ideally out to 6 years which is the statute of limitations for contractual liability. The statute of repose in NY is unlimited so you may have exposure in certain loss situations beyond the 6 years that may be provided. I doubt the New York City Department of Buildings thought about that, however they are more concerned with the big event.
* Products & Completed Operations Coverage Re-Dux : Going forward as New York City Construction Firms contemplate the purchase or renewal of NY Construction General Liability Insurance a big issue will be renewing the practice policies that are providing insurance coverage for all of those past projects that have been built during the go go years of the mid 2000’s. Many of those practice policies that provide that coverage for past products are financed and supplemented by future insurance basis. If these NY General Contracting Firms, and NY Developers stop putting new project insurance basis ( how insurance companies determine premium charges) into these horizontal NY Construction General Liability Practice Policies, there will NOT be enough insurance basis to renew these policies where it makes sense, thus these firms will lose critical NY Construction Products & Complete Operations Liability Coverage leaving their own balance sheets exposed to past project liabilities. Remember insurance is a finance mechanism, a mechanism to finance certain losses. If you don’t finance the loss through the purchased of NY Construction General Liability Practice Policy”, then you will finance it with current cash flow, or retained earnings. For those that cannot or are not comfortable retaining all of that risk, their only option is to continue purchasing the NY Construction General Liability Policies AND NY Construction Project Specific Liability Insurance. Essentially doubling their NY General Liability Insurance Costs!
As I write this I am running around the 5 boroughs like Paul Revere trying to explain to anyone that will listen what the cost impact will be for them. Most insurance brokers don’t care because it’s more revenue for them, however I find that thinking too self serving and short sighted. We need our clients to succeed in what they do. Putting them in position to succeed , protecting what they are building should be priority one. Please contact your Association and let them know this needs to be addressed. Currently I am working with New York State Builders Association, Queens Bronx Building Association, New York State Affordable Housing Association, and Building Industry Association of NY to garner support.
Limits Contingent On Project Size / Scope of Work :
We did a prior post that breaks down the various project sizes, scope of work , and requirements. To refresh yourself of the new New York City Department of Buildings requirements click on the following article title : NYC Buildings Department Changes NY General Liability Insurance Requirements.
In terms of pricing their are two components that every NY General Contracting Firm, and NY Development Company must factor as they begin to prepare for the June 13th, 2011 Department of Building revisions.
1) New York City Construction Project Specific General Liability V.S. New York City Construction Project Specific General Liability
which we detailed above. You will need to figure out a strategy for financing products & completed operations coverage for past projects, at what future cost v.s. retaining that future liability. I will probably research and write a future article on strategies going forward.
2) What Limit @ What Cost:
Essentially to figure out what the potential cost impact will be on your future insurance costs based purely on raising your limit it’s a simple calculation. Your base “underlying coverage of $ 1million per occurrence / $ 2 million aggregate will should not change. That said the amount of “Excess Coverage” or “Umbrella Coverage” (yes there is a difference), has two pricing variables :
Limit (How Much Does the D.O.B. Require for My Project)
Premium Being Charged for Underlying New York City Construction Project Specific General Liability policy.
Thus if you want a cursory idea of what you are looking at with respect to NY Construction Commercial Excess & NY Construction Commercial Umbrella apply the following factors to your New York City Construction Project Specific General Liability premium to understand how the new proposed New York City Department of Buildings General Liability Insurance Requirements will impact your business.
| Limit |
Factor |
| $ 5,000,000 | .35 |
| $10,000,000 | .40 |
| $15,000,000 | .48 |
| $25,000,000 | .60 |
As An Example:
Your New York City Construction Project Specific General Liability Premium is : $100,000
New York City Department of Buildings Requires a $ 5 Million Dollar Limit which has a factor of .35
The formula looks like this: $100,000 (Base NY General Liability Insurance) x .35 ($5 Mill Excess) = $35,000
Thus the cost for a $ 5,000,000 Excess Policy should be $35,000.
Folks, to be clear this is an approximation with a standard margin of error of about 10%. This is just a pure New York City Construction Project Specific General Liability & New York City Construction Project Specific Excess Liability policy exchange and does not contemplate any ancillary exposures that may be added like an environmental policy or other ancillary liability insurance coverage’s and exposures.
There are some techniques we use to drive these numbers down by approximately 20 %, however only clients of Metropolitan Risk Advisory are privy to those techniques. If you would like more information, or would like to obtain a formal quotation with respect to any upcoming project, please call (914)357-8444. Our phones are staffed 24/7 365 welcoming the opportunity to give you cost certainty on your projects.