For those of you late to the dance, this is part 3 of the issue. We suggest you click on the two previous posts to understand exactly what the issue is. This latest post is our potential solution:
Click On:
Issue As We See It:
As stated previously we believe the intent of the new rule being imposed
by the New York City Buildings Department was to be certain there was a
vertical pool of insured capital (NY Construction General Liability
Insurance ) to pay for catastrophic property and injury losses on all
permitted New York City Construction sites requiring certain permits. We
get it, this rule change was born from the two crane collapses in
Manhattan that were woefully under insured. Not only is the Buildings
Department increasing the limit of insurance on the job sites, they are
dictating to the building & insurance community the mechanism for how that is
delivered without understanding the full impact on the market.
Impact:
The impact by changing the mechanism of which type of insurance contract to
buy omitts the products & completed operation component of
past projects distorting their P&L by doubling if not tripling their insurance costs. Further Builders balance sheets are exposed as many will opt not to purchase insurance to cover the products & completed ops exposure, or warranty work, leaving them to retain the exposure and pay for future losses from either current cash flow or retained earnings. As written project
specific insurance liability contracts which are mandated to cover all
future jobs will not provide this critical coverage for past projects which is the gaping whole. Where will the completed ops coverage come from as it relates to past projects and at what cost if it’s available. This is a huge problem for the NY General Contracting / NY Development Community.
The bane of all NY General Contractors and NY Developers is punch list items that need
to be dealt with once the tenants, or end user begins to utilize the
building or structure. This too will not be provided coverage under the
project specific insurance policies once the building has been put to it’s intended use. The cost to deal with this exposure
increases the overall cost of the insurance NY General Contractors, NY
Builders, and NY Developers must pay, on top of the increased limits.
See where this is heading!?
NO Practice NY General Liability Insurance = No Products & Completed Operation Coverage AND No Warranty Work Coverage for Past Projects!! Builders must purchase this coverage separately (if available) at a substantial increased cost basis PLUS purchase NY Project Specific Insurance w increased limits. Projected impact is at the very least doubling the insurance costs for small & mid sized builders.
Proposed Solution:
Understanding the New York City Building Department’s true intent which is to
increase and secure the insured pool of capital ( NY General Liability
Insurance); may we suggest another way to achieve the same goal without
having a major disruptive impact on a community of businesses already
reeling from slack product demand, tight financing , high land
costs, high labor costs, taxes, and arguably the highest
overall bureaucratic and administrative costs in the country.
Instead of mandating “NY Project Specific Construction General Liability
Insurance” , as the mechanism to deliver the insured pool of capital or
NY General, give the NY General Contractors, NY Builders, NY
Developers the choice to satisfy the requirement with either:
1) NY Construction Project Specific General Liability Insurance as is currently reflected in the rule.
OR
2) The ability maintain the same NY Construction General Liability Insurance Policy they have been purchasing for years Except for the Following:
Add the following Endorsement:
CG 25 03 03 97
or it’s equivalent
DESIGNATED CONSTRUCTION PROJECT(S) GENERAL AGGREGATE LIMIT
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
SCHEDULE
| Designated Construction Projects: |
(If
no entry appears above, information required to complete this
endorsement will be shown in the Declarations as applicable to this
endorsement.)
A. For all sums which the insured becomes legally obligated to pay as damages caused by “occurrences” under COVERAGE A (SECTION I), and for all medical expenses caused by accidents under COVERAGE C (SECTION I), which can be attributed only to ongoing operations at a single designated construction project shown in the Schedule above:
1. A
separate Designated Construction Project General Aggregate Limit
applies to each designated construction project, and that limit is equal
to the amount of the General Aggregate Limit shown in the Declarations.
2. The Designated Construction Project General Aggregate Limit is the most we will pay for the sum of all damages under COVERAGE A,
except damages because of “bodily injury” or “property damage” included
in the “products-completed operations hazard”, and for medical expenses
under COVERAGEC regardless of the number of:
a. Insureds;
b. Claims made or “suits” brought; or
c. Persons or organizations making claims or bringing “suits”.
3. Any payments made under COVERAGE A for damages or under COVERAGE C
for medical expenses shall reduce the Designated Construction Project
General Aggregate Limit for that designated construction project. Such
payments shall not reduce the General Aggregate Limit shown in this
Declarations nor shall they reduce any other Designated Construction
Project General Aggregate Limit for any other designated construction
project shown in the Schedule above.
4. The
limits shown in the Declarations for Each Occurrence, Fire Damage and
Medical Expense continue to apply. However, instead of being subject to
the General Aggregate Limit shown in the Declarations, such limits will
be subject to the applicable Designated Construction Project General
Aggregate Limit.
B. For all sums which the insured becomes legally obligated to pay as damages caused by “occurrences” under COVERAGE A (SECTION I), and for all medical expenses caused by accidents under COVERAGE C (SECTION I),
which cannot be attributed only to ongoing operations at a single
designated construction project shown in the Schedule above:
—Any payments made under COVERAGE A for damages or under COVERAGE C
for medical expenses shall reduce the amount available under the
General Aggregate Limit or the Products-Completed Operations Aggregate
Limit, whichever is applicable; and
2. Such payments shall not reduce any Designated Construction Project General Aggregate Limit.
C. When
coverage for liability arising out of the “products-completed
operations hazard” is provided, any payments for damages because of
“bodily injury” or “property damage” included in the “products-completed
operations hazard” will reduce the Products-Completed Operations
Aggregate Limit, and not reduce the General Aggregate Limit nor the
Designated Construction Project General Aggregate Limit.
D. If
the applicable designated construction project has been abandoned,
delayed, or abandoned and then restarted, or if the authorized
contracting parties deviate from plans, blueprints, designs,
specifications or timetables, the project will still be deemed to be the
same construction project.
E. The provisions of Limits Of Insurance (SECTION III) not otherwise modified by this endorsement shall continue to apply as stipulated.
The beauty of this endorsement is that it achieves the goal of the NYC Department of Buildings by creating a vertical pool of insured capital ( NY General Liability Insurance) , AND it can be added to the NY Construction General Liability Practice Policy, which contemplates both the warranty work we highlighted in the previous articles, as well as providing that critical Products & Completed Operations coverage the NY General Contractors, NY Developers need to cover events that may occur as it relates to alleged construction defect claims on past projects that were built. The NYC Buildings Department mandates that this coverage must be reflected on the Certificate of Insurance, which is then accompanied by the Notarized Certification By Broker.
This in our estimation is a home run as everyone wins. Yes there is an increased cost to adding this endorsement to both the underlying NY construction insurance policy as well as the NY Construction Excess Liability policy, or NY Construction Umbrella insurance, however the cost pales in comparison to the cost of trying to comply with the rule as currently written. In our estimation for a NY General Contractor the rule as presently written would more than double the overall insurance cost for NY Builders, NY Developers, & NY General Contractors to maintain the same or similar level of coverage.
In the several times I have met Robert Limandri and his staff at the NYC Buildings Department I have found them to be very open minded and receptive. It’s my hope that their wisdom will once again prevail serving both citizens and business alike. We shall see………
