Co-Op in Bronx Finds Itself in Insurance Limbo After Two Claims

In today’s punishing insurance market where premiums are rising and coverage is decreasing, buildings that have multiple insurance claims on their loss record can have trouble renewing coverage with their carriers — and finding new ones. A 250-unit co-op in the Bronx found itself in this predicament after being named in two claims involving construction workers who had been injured at the building, prompting its original carrier to refuse renewal. This risked pushing the building into the non-preferred insurance marketplace, where coverage can be even spottier and more expensive. 

Rebuffed at Renewal Time

The claims that had tarnished the co-op’s loss record were related to New York's Scaffold Law, which makes property owners liable for injuries suffered by workers in falls, regardless of any negligence. They had yet to be settled, leaving the co-op in a kind of limbo. “It’s not uncommon for labor law claims to remain open until the discovery period runs its course, when the claims are either tendered back to the contractors or not,” says Sean Kent, senior vice president at First Service Insurance Brokers, the insurance branch at FirstService Residential. 

In both cases, the co-op’s property manager had followed a standard protocol by reviewing the contractor’s insurance policies to make sure there were no exclusions and they had adequate coverage. “This includes making sure there's indemnification, contractual risk transfer and ‘hold harmless’ language in place,” Kent explains. The good news: there were no loopholes, and the co-op was able to tender both claims back to the contractors’ insurance. 

Even so, in these situations there's still an expense for the insurance carriers involved, and as underwriters continue to reduce their risk appetite, they might still decide not to renew coverage. Unfortunately, that was the case for the Bronx board. But working with FirstService Insurance Brokers, the co-op was still able to get coverage in the preferred market at a similar rate to the one they were paying prior to the non-renewal. “That all goes back to the ability to tender the claim back to the contractors and get those claims closed with relatively no payout or exposure to the board,” Kent says. 

Had the co-op not been successful, it would likely have been forced to find a new policy in the non-preferred insurance marketplace — a grim scenario. “The premium increases can be anywhere from 100% to 300%, and sometimes with exclusions on top of that,” Kent says. “So it’s important for boards and property managers to know the drill when it comes to risk transferral.”

Proactive Protection

As the Bronx board discovered, ensuring a contractor's coverage is watertight is crucial when it comes to keeping premiums low. It’s equally important to understand that a certificate of insurance isn't enough to confirm coverage. Boards need to take the additional step of closely reviewing the contractor’s policy, since it’s not unheard of for, say, a roofer doing a major project on a building to have height exclusions for falls. “This essentially means anything over 35 feet, which is about three stories, is excluded,” Kent says. “That's a good example of the devil in the details. You have to make sure that everything is in order and that coverage would be transferred in the event of a contractor claim.” 

As for rising premium, boards could opt to buy lower umbrella liability limits. If a building can live with a $10 million liability limit as opposed to $50 million, that might also be a route to saving money. Another takeaway for boards is to ensure that building maintenance is not deferred, Kent adds. “Liability claims, specifically slip and fall claims, are a big issue in New York, where you have large buildings that take up an entire block,” he says. If a building is responsible for four corners of sidewalk, that will be noted by the underwriters. If the carrier has recommendations, like repairing part of the sidewalk that presents a slip and fall risk, it’s sensible to see them more accurately as requirements. Boards should take a look at their reserve study to see how their building has been maintained over the years. “If there's been a lot of deferred maintenance,” says Kent, “that's usually an indication that there could be a problem.”

—Emily Myers