By Derek R. Broaddus, CPCU, ASLI Senior Vice President, Excess Casualty Division
Allied World Assurance Company

Take a look up the next time you are walking through New York City and you might just see a man clinging to a building like Spiderman, cleaning a window. Or perhaps your walk will be diverted by a construction project that causes sidewalk closures down below, but reaches 50 stories high to repair a building as part of a regular maintenance program.

These maintenance and repair projects are a daily occurrence in New York, mostly commissioned by real estate owners who carefully select, hire and put the work in the hands of capable, qualified and licensed contractors. What many do not realize is that when hiring a contractor, or having regular maintenance done by an employee on the property, the real estate owner takes on a significant risk if a worker is harmed on the site under New York Labor Law.

New York Labor Law has created unique and obvious risk concerns around height-related construction work in New York. The legislative intent of the law is to “protect workers by placing ultimate responsibility for safety practices at building construction sites upon the owners and the general contractors, or their agents, instead of the workers who are not in the position to protect themselves.” In practice, this law can make it difficult to insure New York contractors, particularly with excess limits. The market has responded in part with the introduction of layered programs. These programs often have multiple markets taking shorter limit “buffer” strategies for even smaller New York major trades down to smaller sub- contractors.

What is less understood is the exposure of New York real estate owners when their owned properties are under construction or basic maintenance. New York Labor Laws apply to both the contractor and property owner.

Labor Law 240 has an “enumerated activities” element, which is required for the absolute liability to apply. The activities that are listed in the law are demolition, altering, repair, maintenance, painting and cleaning. “Routine Maintenance”, however, is not covered or contemplated under Labor Law. These statutes can lead to disputes on who made repairs and whether they would be considered routine. Examples include running wire and installing security cameras while on a ladder (if the plaintiff or his employers are hired by the owner or the general contractor to perform this work).

Owners of residential buildings must comply with sections of the New York City Building Code dealing with maintenance (sections 27-127), owner responsibility (sections 27-128), alterations to residential buildings (27-1021), periodic inspections of exterior wall and appurtenances (RCNY 32-03) and standardization of work permits required for Local Law 11 inspections (TPPN

1/99). The compliance with these codes puts the real estate owners at risk, as they may readily hire people or firms to perform this work. In order to be considered compliant, buildings over six stories (including their exterior walls) must be inspected at least once every 5 years by a licensed professional. The law also makes the building owner responsible for maintaining a building in a safe condition.

This photo depicts the normal maintenance repointing of an office building in downtown New York City. Labor Law could apply here, as this is a repair (working from height). It is important to note that the area was safely sectioned off and all of the workers at height were tied off. A real estate owner who hired this subcontractor may be liable if there are not sufficient contractual agreements and limits available. The cases below highlight the risks around New York Labor Law, some of which are related to the “Enumerated Activities” and some “Protected” activities.

Labor Law §240(1)

Enumerated Activities: Erection, Demolition, Repairing, Altering, Painting, Cleaning and Pointing

(1) Fox v. Brozman-Archer Realty Servs., 266 A.D.2d 97 (1st Dep’t 1999): Managing agent of building was a statutory agent under Labor Law §240(1) where its management contract gave it authority to supervise the injury-producing work of the Plaintiff maintenance worker.

(2) Cf. Prats v. Port Auth. of New York & New Jersey, 100 N.Y.2d 878 (2003): Plaintiff—an assistant mechanic whose employer was contracted by the building’s owner to clean, repair and rehabilitate air handling units and associated structures—was injured when he fell from a ladder. Execution of the employer’s contract necessitated rebuilding walls and laying concrete. The Court of Appeals held that Plaintiff was engaged in one of the “enumerated activities” cited in Labor Law §240(1). The Court reasoned that because Plaintiff was a “mechanic who routinely undertook an enumerated activity, [was an employee of] a company engaged under a contract to carry out an enumerated activity, and [participated] in an enumerated activity during the specific project and at the same site where the injury occurred,” he was engaged in a process involving the building’s alteration, and his work went beyond mere maintenance. Id. at 883.

(3) Esposito v. New York City Indus. Dev. Agency, 1 N.Y.3d 526 (2003): Plaintiff was injured after falling from a ladder while attempting to remove a cover from an air conditioning unit at a commercial building. The Court of Appeals held that Labor Law §240(1) did not apply because “[t]he work…involved replacing components that require replacement in the course of normal wear and tear. It therefore constituted routine maintenance and not ‘repairing’ or any of the other enumerated activities.” Id. at 528.

Labor Law §241(6)

Protected Activities: Construction, Demolition, and Excavation

(1) Nagel v. D&R Realty Corp., 99 N.Y.2d 98 (2002): Plaintiff laborer slipped and fell while performing two-year safety inspection of building elevator and Labor Law 241(6) claim was dismissed: Plaintiff was engaged in “maintenance work that was not connected to construction, demolition or excavation of a building or structure” and Labor Law 241(6), therefore, did not apply. Id. at 102.

Are the exposures related to Labor Law and New York real estate owners being properly contemplated? An inspection of ISO loss costs of common classes suggests that real estate accounts are not being treated with the same punitive multiplier that construction accounts face.

It could be argued that the insurance market at large has not properly recognized the exposure to New York real estate owners (at least as well as it has for New York contractors). There is some recognition of this heightened exposure for real estate relative to other state’s loss costs. But is it enough?

Consider the multiples charged for the same contractor in New York compared to in New Jersey or Connecticut, then take a look at how much less the multiple is for common real estate classes. It is evident that on some of the most common classes of construction, the difference between the ISO price in New York and non-New York is severe.

That multiple nearly disappears on real estate business, which also has exposure to the same Labor Law.

Some markets attempt to offset this exposure by excluding some construction activities on New York real estate accounts via endorsement. Most of these exclusions attempt to exclude construction or totally new buildings, or “other than maintenance” construction. These exclusions may reduce but do not eliminate the associated exposures. The picture above, again, could be argued to have been maintenance as required by New York law.

Only time will tell if the differential is enough for current primary and excess supporters of New York real estate to continue to provide their coverage or if that market will also shrink similar to the market for New York contractors.

Until then, the Labor Law exposure for both real estate and contractors remains a heightened risk factor unique to New York.