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January 6, 2004

Council: 240/241 must be reformed to address industry insurance crisis

Sections 240/241 of the state’s Labor Law expose New York’s property owners and contractors to unfair liability, make business insurance prohibitively expensive if it’s available at all, and drive up everyday costs for taxpayers and all New Yorkers, The Council has told the state Insurance Department.

In testimony submitted to the department on December 29, The Council wrote that New York’s construction industry faces an insurance crisis, and one caused by the uniquely shortsighted state labor law.

“This crisis may be a boon to some trial lawyers, but it is a bane for all other New Yorkers,” the testimony said. “ It’s time New York followed the common-sense lead of 49 other states and repealed this short-sighted law.”

Construction industry members have reported to The Council that their insurance industry premiums are spiraling out of control, the testimony added.

“Some say their insurance costs have increased as much as 500 percent in a single year. Others report one-year increases of 300 percent. Some say they cannot buy insurance at any price.”

And construction firms have found that despite higher costs, their actual coverage is shrinking, the testimony said.

”Many renewal policies have specifically excluded 240/241 issues from coverage.”

That leaves the industry with fewer and fewer options, the testimony added.

“Those carriers that remain in New York State offer 240/241 protection only with steadily increasingly premiums. This forces consumers to rely on fewer carriers within a "take-it-or-leave-it" market.”

Carriers hesitate of offer 240/241 coverage because liability under that law is extremely broad and unforgiving.

“New York’s courts have upheld this "absolute liability standard," which means property owners and their contractors have no way to defend their actions and their safety records in liability cases that fall under this statute,” the testimony said.

“Offering insurance to an industry that cannot even defend itself is fighting a losing battle. It is no wonder that general liability coverage premiums continue to increase dramatically while fewer and fewer carriers even offer 240/241 coverage.”

No other state has a law like 240/241 on the books, the testimony added. “That is forcing New York contractors to look for work in other states.”

“The costs of insurance in New York that are so needlessly inflated by 240/241 impose a new burden on New Yorkers——because it is they, after all, who ultimately pay the inflated costs of construction projects in this state,” the testimony said.

“New York’s construction companies will feel no relief until section 240/241 is reformed,” the testimony concluded.

“The state’s draconian absolute-liability standard must be replaced with a more sensible and balanced negligence-based standard. As long as the law stands as it is, premiums will continue to rise and contractors will continue to leave the state or shut their doors.”

Hearing on Commercial Liability Insurance Markets in New York State Testimony.