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Soaring insurance costs driven by New York State’s controversial liability standard, the Scaffold Law, are draining billions of dollars from the economy and even forcing some contractors out of business, according to a report commissioned by the Building Trades Employers’ Association (BTEA), New York City’s largest contractor association.

The report by HR&A Advisors found because of the law, insurance rates in New York City account for eight to 10 per cent of total development fees, making the city’s insurance costs two to five times higher than comparable markets in other states.

Elizabeth Crowley, the BTEA’s president and CEO, is not surprised by the numbers and suggests they are conservative, especially in some trades.

Insurance for contractors in high-risk trades like steel erection, environmental work and scaffolding eats 15 to 20 per cent of total revenue and in some cases contractors report numbers closer to 40 per cent, she says.

She states New York contractors pay five times more than California, “the most liberal and expensive state.”

The findings support a bill in Congress for the pre-emption of the Scaffold Law in New York on all federal projects, the BTEA head says. That bill might have to pass in order for multibillion-dollar federally funded projects in the city to get the green light.

Enacted in 1895, the state’s Scaffold Law, which is often associated with New York City because of the concentration of large-scale projects, holds property owners and contractors fully liable for gravity-related worker injuries, regardless of whether the worker was at fault.

It is the only law of its kind in the U.S. Elsewhere a comparative negligence model is employed, where liability is shared among parties based on their degree of fault.

HR&A’s findings were based on interviews and surveys of 54 respondents statewide, including owners, general contractors, construction managers, subcontractors and insurance companies and brokers, Crowley says.

The report included a number of environmental contractors, bridge painting companies and others with soaring insurance costs.

“We’ve had companies that have had to close shop because the cost of insurance is so high.”

While New York has seen a decline in construction incidents, the number of claims has increased, Crowley says.

 “There are reports that it is ripe for fraud and abuse because of the lack of comparative negligence,” says Crowley. “There’s no standard of comparing who is at fault.”

Along with highlighting the cost savings, the report includes job creation and the project delivery benefits associated with reform.

Bringing comparative negligence reforms to the state could save $280 to $560 million on the tab for the $7 billion redevelopment planned for Penn Station, she says.

Similar savings could result on the multibillion-dollar Second Avenue Subway Phase 2 and reforms could free up money to advance more needed affordable housing in the city. 

“The cost of construction is so expensive it is preventing us from building big and building abundantly.”

Crowley says one insurance company has been fighting claims under the Scaffold Law with countersuits, resulting in hundreds of claims dropped.

HR&A’s report outlines how the law’s absolute liability standard has contributed to higher insurance premiums without corresponding improvements in worker safety, placing added strain on contractors, particularly small and mid-sized firms, she points out.

At 41 per cent, general contractors made up the largest percentage of respondents in the survey, followed by developers at 22 per cent.

HR&A is an urban planning, real‑estate and economic‑development consulting firm that works with governments, developers, non-profits and philanthropies to shape major city‑building projects.