Loss Runs Are a Big Driver of Insurance Costs

A loss run shows the insurance losses that a building has sustained, and the figure greatly affects what a building pays for insurance. Every year, underwriters look at how the building is performing, its total number of losses, and whether they can be stopped, changed, or mitigated. 

Loss runs are an important part of what drives a condo or co-op’s insurance costs. Most people underestimate how important it is for the managing agent and the board to be looking at those loss runs every year so they can understand how the building is trending and what that may mean towards future costs. 

If understanding loss runs is crucial, then keeping down claims is just as important. That brings us to Sections 240 and 241 of the New York State Labor Law, commonly called the Scaffold Law. When a contractor falls while working at your building, you could end up paying a significant sum. That’s because of a century-old labor law that still has teeth. Just recently, a worker who fell off a ladder received money from worker’s compensation coverage – but also collected an additional $16 million under the Scaffold Law.

This is a situation unique to New York. Generally, throughout the country, you have worker’s comp insurance. If a worker gets injured on the job, he’s covered for loss of life, injuries, and medical costs. It’s expensive for the people that provide it, but it’s really comprehensive and a great policy.

New York State, however, goes beyond that, saying that if a worker falls from a height of 10 inches or more, the owner of the property has “absolute liability.” That means it doesn’t matter what happened – the injured worker may not have been wearing a safety harness – the co-op or condo, as landlord, is still held responsible. Even though similar laws have been overturned in every other state in the country, the law persists in New York. It’s been a huge problem that the legislature and the governor continue to not to address. This law substantially adds to the cost of insurance in New York. 

So what can you do as a board? Reduce the likelihood of accidents by making sure that any contractor who comes onto the site is properly vetted. Sometimes, the contractor who gets the job is the low bidder, but it’s not the sort of work he normally undertakes. I would encourage boards not to hire based solely on price, but to find a contractor who has a good track record in the required work. 

You also must have a written contract that requires the general contractor to indemnify the building and be responsible for workplace safety. You should have a signed contract along with a certificate naming the association and the managing agent as additional insureds. A contractor should have a minimum of a $1 million base policy and a $5 million umbrella, so at least you have $6 million worth of coverage protecting the association. If the project is bigger, the board could ask for more coverage. In the end, unless you have the proper contractual language with the general contractor, you’ll be left holding the bag – and your loss runs will show it. Only in New York. 

Michael Spain is vice president of Brown & Brown Insurance.