By Allison McGreal, Vice President, PartnerOne Environmental
In recent years, insurance carriers have been treating New York accounts like they are doing the Hokey Pokey. They’re in, or they’re out, or they are shaking it all about with exclusions. Many insurers that have written Commercial General Liability in New York State have made a conscious decision to stop writing accounts there altogether, presumably due to poor loss results. Others have continued to write business in this area, but have chosen to restrict coverage by adding an Action Over exclusion or limiting where an insured may work―typically excluding contracting operations in the 5 boroughs of New York City and surrounding counties. Some even involve a broader area that includes Suffolk and Nassau Counties. Only a few companies have had the fortitude and foresight to stay the course and offer broad coverages required by contractors.
Why is Action Over Coverage Important?
Typically, an injured employee files a claim against the employer’s Workers Compensation policy, but in New York, because of Labor Laws 240 and 241, an injured worker may file a claim under both the Workers Comp and the CGL policies. These laws state that contractors or their agents (which includes construction companies who employ them or property owners), are responsible for the safety of their workers performing ‘work from height.’ Work from height also includes a fall from ground level to an underground level; for example, an employee who falls from ground level into a trench.
Scenario #1- Based on an Actual Claim:
In 2012, a contractor located in upstate New York was hired to perform asbestos abatement operations. They had recently implemented new safety protocols to help mitigate losses and they also purchased an insurance policy that included Contractors General Liability (CGL) and Contractors Pollution Liability (CPL) for which they paid roughly $30,000 premium. Shortly after the policy was written, a claim was reported to the CGL carrier which alleged an employee had fallen from a 5-foot scaffold at the jobsite, resulting in a broken leg. Initially set up with a $5,000 reserve, the claim eventually reached the $1,000,000 policy limit.
As absurd as it may seem, a fall from a scaffold in upstate NY that started with a broken leg has led to a policy limits claim in just four years. Had this insured purchased a policy with an Action Over exclusion, they would quite possibly have gone out of business, unable to pay such a large claim or settlement.
Scenario #2- Based on an Actual Claim:
In 2012, a contractor was hired to perform remediation work. During the course of the project, the claimant, an employee of the insured, alleged she fractured her knee in a fall on stairs at a pedestrian bridge where the insured had been working. The Workers Comp policy paid nearly $190,000 and closed out the claim. The initial GL claim was set up with a $15,000 reserve. As of August 2016, the incurred amount had grown to $165,000 and remains open. The premium for the CGL/CPL 2012 policy term, when the claim occurred, was $11,000.
Scenario #3- Based on an Actual Claim:
In 2014, a contractor was hired to do asbestos abatement and demolition work in upstate NY. During the course of the project, an employee of the insured fell from a scaffold at the jobsite, causing bodily injury. A claim was made against the employer’s Workers Compensation policy and has an incurred amount of roughly $175,000. In 2015, an Action Over claim was made against the employer’s CGL policy and the open incurred amount is $165,000 as of June 2016. The premium payment for the 2014 policy term, when the claim occurred was $33,000.
The Role of the agent:
There’s a fallacy that Action Over claims only occur in the 5 boroughs of NYC and surrounding areas. While the prevalence of this type of claim is greater in these areas, these claim scenarios illustrate that people fall from height in all areas in NY (and sometime other states) and not having proper coverage may be catastrophic to a business.
Managing these accounts is where agents really have to understand the coverages and gaps. In the short term, a carrier may have a less expensive product but in the long term, can the business survive an uncovered action over claim? The insurers have experienced attorneys who fully understand the coverage nuances of Action Over claims and are able to negotiate from experience. Will the insured be able to afford hiring a lawyer with the appropriate expertise to defend them for an uncovered claim? Will they have the expertise to navigate the insurance coverages to arrive at a good settlement? Will the business survive if they have to pay a $1,000,000 loss?
These claim scenarios illustrate that in addition to concerns for large payouts for Action Over claims, these cases may be examined (and incur costs) for years afterward. When trying to place or renew an account with an open Action Over claim, the agent must convey this to the client when discussing rates and premiums. Not only will the carrier consider current reserves but also the potential for the claim to grow considerably.
Insureds often don’t fully understand Action Over coverage or its value. They typically want the best/broadest coverage for the lowest premium, but it is crucial for the agent/broker to explain that the best coverage is not always the cheapest. Purchasing broad, necessary coverage comes at a higher cost. Ultimately, is it more cost effective to buy a $30,000 CGL/CPL policy with Action Over coverage in which the claim is covered, versus a policy for a lower premium with no Action Over coverage, resulting in paying the claim out of pocket.
The Role of the carrier:
Insurance is a business and in order to be successful in the long term, carriers must be diligent in how they underwrite and price risks. Some carriers who have previously written coverage in New York have stopped writing coverage in the state and others have added restrictive endorsements or changed their protocols. Some insurers have opted to non-renew accounts with claims, and others have stopped offering coverage for certain classes of business. As an agent, it’s important to find a carrier who has the vision to provide strong coverage and support an insured in the event of a claim. Carriers often reward long-time clients by offering renewal terms despite claims, try to hold renewal rate increases to a manageable increase, and have a steady approach to writing NY business.
As agents continue to solicit contractor business in New York, they must consider the long-term outlook of placing coverage with carriers based on their overall philosophy of writing business in NY, coverage standpoint, claims handling practices, service department, and premium. In other words, choose your dance partner wisely and stop doing the hokey pokey.