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:

 

New York City Department of Buildings Issues Rule Change As It Relates To NY Commercial General Liability Insurance

Potential Cost Impact of the New Department Of Buildings Ruling Relating To NY Contractors General Liability Insurance

 

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 omitting the products & completed operation component of past projects distorts 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. Where will it come from, and at what cost if it's available 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. 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 COVERAGE C 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.........