Sean Kent, Senior Vice President of Insurance at FirstService Financial, an affiliated advisor to properties managed by FirstService Residential, offers a snapshot of New York City’s turbulent liability insurance marketplace for condominium and cooperative properties.  

To describe the current state of New York City’s liability insurance marketplace for condominiums and cooperatives as “challenging” would be an understatement. For almost two years now, underwriters and insurance professionals specializing in New York City’s multifamily residential sector, commonly referred to as habitational insurance, have been lamenting over the difficulties in obtaining competitive underwriting terms for general liability and umbrella insurance policies. Unfortunately, those difficulties have not only persisted, but worsened, and we now find ourselves in what many believe is the worst it’s ever been, especially for umbrella, or more correctly, excess liability insurance.
Board members, building owners and management companies across the city have likely experienced these tumultuous market conditions first-hand when attempting to obtain an insurance renewal.
Condos and co-ops have historically relied on Risk Purchasing Groups (RPGs) to procure umbrella coverage with high limits and robust coverage at relatively low costs. An RPG is a group formed by an underwriter representing an insurance company or multiple insurance companies, with the goal of providing competitive insurance terms to a group of insureds engaged in similar businesses or activities, such as habitational real estate. Umbrella policies serve as protection for associations in the event of major or catastrophic liability claims stemming from bodily injury or property damage that exceed the limits of a primary general liability policy.

Considering the litigious nature of plaintiff attorneys in New York City and unfavorable laws that present a greater liability exposure to building owners, access to these RPGs over the years has been a critical factor for insurance brokers seeking umbrella coverage for condos and co-ops. Umbrella premiums were typically a small percentage of the total premium for a building’s entire insurance package, and many would argue that coverage for umbrella policies was far underpriced for too many years. However, that trend is ending as habitational umbrella options are now scarce and premiums continue to rise.

In the past three months, a few of the remaining umbrella RPGs offering excess liability coverage to New York City condos and co-ops have announced that they will no longer accept applications for quotes, are canceling many existing policies, and will be adding coverage limitations or exclusions that have a significant impact to the overall scope of coverage provided. Other umbrella RPGs have decided to exit the marketplace altogether, citing poor profitability due to an increase in severe claims with settlements in the tens of millions, also known as nuclear jury verdicts. What was already a small pool of RPGs offering umbrella insurance, has become a much smaller pool of two or three RPGs that have been forced to restructure and have become extremely selective in their underwriting and coverage offerings, while also being inundated with submissions for quotes. Eligibility for these programs has become more stringent, and even buildings that qualify are seeing significant premium increases for umbrella coverage with a reduction on limits and coverage, to boot.

Reasons Behind Underwriting Market Conditions

While there are multitude of causes for this major shift in the underwriting market, there are two major points of origin to reference.

1.   Large liability claims can take years to develop.

The evolution of a bodily injury or property damage liability claim begins with coverage under the general liability policy. Most general liability policies have a liability limit of $1 million per occurrence. When the claim is first submitted, the general liability carrier sets a claim “reserve” that indicates what the claims person assigned expects to be the total approximate cost of each particular claim.

In New York, average jury verdicts have ballooned, forcing insurance carriers to pay much larger settlements than the initial reserve amounts predicted. Many claims exceed the $1 million per occurrence liability limit for primary general liability policies.

If a claim exceeds the limit of the primary general liability policy, umbrella policies are triggered to provide coverage for claim amounts exceeding those limits. It may take a number of years after the claim is first asserted to have an accurate estimate of the eventual damages, allowing reserves to be adjusted.

In the end, many of these claim amounts have been judgments in the tens of millions of dollars.  

2.  Labor Law 240, New York State’s “Scaffolding Law,” imposes strict liability on building owners and property managers 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 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. Between legal fees and the potential for large judgments, the likelihood of these claims and the costs associated has habitational liability insurance underwriters running for the hills.
Most of the underwriters still willing to offer liability coverage on behalf of boards and building owners now make it standard practice to attach exclusions for claims arising from construction work. This protects the insurance carriers from astronomical payouts, and also creates an intersection of exposure and liability coverage between the contractors, subcontractors and building owners. Many underwriters are requiring a review of the insurance policies for each contractor performing work at buildings to validate they are carrying adequate liability coverage. If the level of coverage being carried by contractors does not meet their standards, underwriters are more inclined to attach construction exclusions.   

Adequate Risk Transfer for New York City Condominiums & Cooperatives

It is extremely important to conduct a review of all contracts and audit the contractor’s insurance policies beyond certificates of insurance prior to awarding bids, and certainly before the project begins. These risk transfer practices can be onerous and require involvement from professionals with the expertise to review contractual language and insurance policies for potential pitfalls. Owners should include their general counsel in the review of contractual language for the agreements between owners and contractors bidding on a project. Indemnification and hold harmless language in the favor of building owners is critical.
In addition, owner’s insurance brokers or third-party insurance consultants should assist in the review of the contractor’s insurance policies to ensure coverage is adequate and there are no construction-related exclusions that would prevent their policies from responding to a claim. As a reminder, a building owner’s insurance carrier might require a review of those policies as well. It is typically best to be proactive by obtaining the complete policies and performing audits ahead of time.
None of what’s been presented paints a pretty picture of New York City’s liability insurance marketplace. However, property managers, building owners, insurance brokers, carriers and the construction industry are all taking notice. While insurance premiums have been on the rise and maintaining competitive coverage is now a challenge, we have observed stakeholders working in collaboration to effectively transfer risk and bolster protection against major claims.
Education and awareness on shifting market conditions continues to grow, and is expected to spur a positive impact on consumer premium pricing and access to affordable liability coverage – in due time.

For the 2022 Cooperator Expo in New York City, Sean Kent, Senior Vice President of FirstService Financial, was joined by Senior Vice President Christina Forbes, and Vice President and General Counsel Ben Kirschenbaum to discuss how boards and owners can mitgate risk despite a turbulent insurance market. Click below to watch the entire presentation.


Mitigating Risk & Liability: FirstService Residential’s Exclusive Insurance & Advisory Services

Our licensed insurance brokerage, FS Insurance Brokers, leverages the size of our property portfolio, historical claims and loss data, and our property managers’ certification in risk management to negotiate policies that result in lower annual premiums with better terms and coverage limits. Their team of expert has co-brokered over 3,200 placements for our clients, saving them over $5.5 million in annual insurance premiums. 
In addition to tracking your insurance policy expirations and obtaining the renewal proposals, our dedicated insurance affiliate will arrange for certificates of insurance to be processed and sent to your lenders and will cause invoices to be  paid in a timely manner to avoid lapses in coverage. Their claims administrator coordinates the reporting and filing of any insurance claims on behalf of your building or board.

Key program features include:

  • Green upgrade coverage, premium financing, free boiler and machinery inspections, and optional guaranteed replacement cost coverage
  • Access to exclusive umbrella liability options that provide additional limits in excess of the building’s general liability and your board’s Directors & Officers liability policies
  • Access to exclusive Crime/Fidelity policy with enhanced limits and supplementary coverage options
  • Complimentary review of your building’s contractors’ and vendors’ insurance policies and contracts
  • Independent insurance risk consultation at a discounted cost
  • Protecting you from overspending
  • Cyber Liability coverage
We welcome the opportunity to explore how our unparalleled market expertise, proprietary resources and value-added services can be tailored to fit the unique needs of your board and your residents. Email us at [email protected] or call us at 212 .324.9944 to learn how our experts can make a difference at your property.

Friday May 06, 2022