2024 Insurance Market Trends: General Liability, D&O Coverage, and Umbrella Policies
Our affiliated insurance brokerage has saved millions for boards and building owners.
FS Insurance Brokers applies in-depth market knowledge, extensive buying power, and relationships with top carriers to reduce insurance premiums and maximize coverage for our clients.
While insurance market volatility is not the norm, building owners and condominium and cooperative board members have seen a steady increase in insurance premium costs, lower policy limits, and strict new standards to qualify for the most basic property insurance and excess liability coverage. The most common questions we hear are “why is this happening” and “what can we do to protect our owners, shareholders, and the board from financial exposure?”
FirstService Residential and leaders from our affiliated brokerage recently hosted a live panel event to unpack the state of the market, catastrophic insurance claim trends, Labor Law 240 (the “Scaffold Law”), umbrella policies, contractor best practices, and adequate D&O policy limits.
Click here to watch a recording of the panel event.
What is the cause behind the insurance premium increases? Why are prices rising?
Following the pandemic, the cost of insurance has been creeping up in virtually all lines of business. In the United States, the 2021 Surfside, Florida condominium collapse sent even more shockwaves throughout the industry. The subsequent insurance disbursement to affected parties peaked at more than $1 billion which illustrated the importance of accurate building valuations. Many carriers now insist on far higher deductibles, especially for claims involving water damage. For some carriers, this means deductibles valued between $50,000 and $100,000.For many years in New York City, insurance carriers accepted valuations on fire-resistive high-rise buildings priced at $200 to $250 per square foot. This was well before the Surfside collapse and before the pandemic when labor and material costs spiked dramatically. As a result, most of these properties cannot be rebuilt for under $500 per square foot, so carriers are requiring more accurate insurable values (rebuilding costs).
What is Labor Law 240, the “Scaffold Law?”
Labor Law 240 imposes strict liability on building owners should a project-related injury occur to a contractor or subcontractor employee at a building. In other words, if a contractor’s worker is injured while working at a building there may be no need for that employee to prove that there was any negligence on the part of the building owner, nor is any negligence of the injured party relevant. The element of strict liability in these cases makes it almost certain that a building owner will be named in a suit, which requires their insurance carriers to defend such claims.While it was not the intent of state lawmakers, passage of Labor Law 240 has opened the floodgates to gargantuan liability claims in residential properties. This has led to significant rate increases and many of the major insurance carriers exiting the multifamily sector altogether.
"If anybody is working at a height or getting on a ladder, it is worth it to pay more for a contractor with good insurance, because if they don't, and you have a Labor Law claim, you may lose your coverage upon renewal and the amount that you will have to pay to get umbrella liability insurance will skyrocket."
— Sean Kent, Senior Vice President | FS Insurance Brokers
"Juries are called upon to determine verdicts and judgments, and the size of awarded claims is becoming bigger and bigger and bigger. A plaintiff with a broken ankle who may have been awarded $75,000, $150,000, even $300,000, may now be awarded, easily, over $1 million."
— Jillian Menna, Vice President & General Counsel | Genatt V;
and Of Counsel | Braverman Greenspun
The primary General Liability layer of coverage is no longer enough to cover slip and fall claims. Excess layers of coverage have more frequently become the primary or working layer of coverage. This has caused a tremendous shift in the insurance industry.
Does New York’s Labor Law refer to construction work or renovation and repairs, as well?
There's a fine line between what is maintenance and what is repair, renovation, or construction. In the State of New York, there are a plethora of rulings that define “maintenance,” “repairs,” and “construction.” With so many precedents, the courts must look at the specific facts for each case."You might have a contractor come to maintain your sprinklers, and it might be purely maintenance. If during the course of maintaining your sprinklers, he realizes that a sprinkler head needs to be replaced, comes down off his ladder, gets the sprinkler head, and goes back up the ladder to replace the sprinkler head, that just went from maintenance to repair and renovation under the labor law."
and Of Counsel | Braverman Greenspun
Why does an insurance carrier need to review contractor insurance policies?
More underwriters are now requiring a review of the insurance policies for each contractor performing work at a building to validate that they are carrying adequate liability coverage. The biggest concern is a catastrophic Labor Law 240 claim, as well as exclusions that do not transfer risk away from the building. The carriers want to make sure their clients have an agreement in place with the third-party contractor wherein the liability falls on the contractor, should a claim occur."An example is a facade project where an employee of the contractor gets injured. A claim was filed, and there was no risk transfer on the contract that was executed, meaning that there’s no formal agreement holding the contractor responsible should there be any claim that occurred during the project. That employee is going to file a lawsuit against the building. The building will end up being stuck with that claim."
and Of Counsel | Braverman Greenspun
Before you sign on to any project, you want to have an experienced insurance professional review your documents to confirm that you’re adequately protected. FirstService Residential can help.
Where have the umbrella policies gone and why is it so difficult to secure excess liability policies?
Given the increasing number of claims awarded in New York City and throughout the country, an umbrella or excess liability policy is a must. When acquired through a Risk Purchasing Group (RPG), $100 million to $200 million umbrella liability policies were typically quite affordable. However, insurance markets have grown increasingly volatile in the last two years. As a result, there are fewer programs offering coverage in excess of $100 million."What happened over time is there were a ton of labor law claims, and most of the risk purchasing groups closed their doors. So now we have only a handful of risk purchasing groups left."
Similar to general liability policies, boards must be wary of new exclusions appearing in many available policies. These exclusions primarily pertain to contractors and labor laws.
"We've seen contractors that are specific to roof work, and they have adequate policy limits, buy they have a height exclusion on their policy for more than three stories, and they're working on a 15-story building. And trust me, you think, ‘why would that even be a thing?’ That's why reviewing contractor policies is extremely important."
and Of Counsel | Braverman Greenspun
Our experts recommend umbrella or excess liability insurance with limits no less than $25 million for each occurrence and aggregate. This should provide follow-form coverage over the commercial general liability and employers’ liability policies which cover negligence lawsuits over work-related injuries.
How much Directors & Officers (D&O) liability insurance coverage does a board need?
Directors & Officers (D&O) liability insurance provides protection from personal claims or disputes that arise between the board and an individual. These claims can include disputes between a building owner and a building staff member or between the board and a shareholder. Discrimination, harassment, and employment practice claims are among the many types of personal claims. Many policies will also provide a defense if someone in contract with the board claims that the board breached the contract.Across the country, there has been a major increase in D&O liability claims. Insurance carriers are looking much more closely at their underwriting, increasing rates, and including stricter requirements to qualify for coverage.
"There are certain D&O policies that exclude discrimination and harassment. This includes claims regarding unfair treatment on the basis of race, religion, or another protected class. Whatever the case may be, you want to make sure you have that coverage in your policy. As a board member, I would lose more sleep about that as opposed to the level of coverage that we're buying, the limit."
Do insurance carriers require a building inspection before offering coverage?
Strict approval checklists and recommendations levied by insurance carriers have made it difficult for residential buildings to qualify for insurance. It’s typical for insurance carriers to request a proper walkthrough every two to three years to assess the conditions of common areas, mechanical equipment, and superficial building details. The carrier will then share a list of recommendations for improvement or repair. Some of these recommendations are as easy as putting up a sign or replacing a handrail. More substantial recommendations may include repaving a sidewalk or pathway with cracks or an uneven surface.
"It's critical that when these recommendations are sent, they are complied with right away. Typically, you have about 30 days to comply with these recommendations. However, if you have an active conversation and correspondence with your insurance carrier, many times they're willing to grant an extension if needed, especially on more extensive projects. If you don't respond, or have a plan in place, or you decide to disregard the recommendations, it can result in a midterm cancelation or a non-renewal. If you disagree with any recommendations, that's a conversation that you can have with the carrier as well."
— Alison Zuffi, Insurance Director | FirstService Residential
Once a building receives a midterm cancelation or a non-renewal on its historical record, that will serve as a red flag when a new policy is needed. Carriers will ask for details on why the policy was canceled, and it will reflect poorly if the reason is non-compliance with recommendations.
HPD and DOB violations are also a red flag for insurance carriers. If a building has a lot of open violations, a carrier may decline to provide coverage.
Do I need to update or renovate my building to secure insurance?
Many older buildings in New York are not fully sprinklered or require capital improvements before a carrier will offer a quote for coverage. In the past, a mid- or high-rise building that was not fully sprinklered was not a red flag for carriers. Today, this is a dealbreaker for buildings over 15 stories looking to secure coverage. If a building hasn’t had a roof, electrical, or plumbing upgrade for decades, this will also prove difficult when seeking coverage."These will be the first questions an underwriter will ask. Many older buildings struggle with this, and that's why it's important to constantly inspect these items and talk to your management team to make sure that these are getting reviewed regularly."
Our affiliated insurance brokerage has saved millions for boards and building owners.
FS Insurance Brokers applies in-depth market knowledge, extensive buying power, and relationships with top carriers to reduce insurance premiums and maximize coverage for our clients. These experts have brokered or co-brokered thousands of placements for our clients, saving them millions in annual insurance premiums.- A Manhattan co-op board saved more than $15,000 on their annual premium and secured an umbrella policy with better coverage
- A Queens condo saved 13% on a commercial insurance renewal with fewer exclusions than the previous policy
- We negotiated significantly broader coverage for a condo whose incumbent broker could not provide the board with assistance during a difficult renewal
- Our partner offered coverage with guaranteed replacement cost, while reducing the association’s premium by 15% during a challenging renewal
- A Manhattan condo board obtained broader coverage, higher limits, and saved nearly 25% on the annual premium