Andrew Richards - New insurance rules in New York City may cause increased cost for Long Island contractors

Contractors on Long Island may now opt to do business in their own back yard as the The New York City Department of Buildings has published a new rule, RCNY § 101-08, effective June 13, 2011, that places expanded insurance and indemnification obligations on nearly all contractors applying for construction and demolition permits in the City of New York. These new requirements, and the costs associated therewith, likely will increase the cost to complete construction projects in the City. The New York City Department of Buildings has published a new rule, RCNY § 101-08, effective June 13, 2011, that places expanded insurance and indemnification obligations on nearly all contractors applying for construction and demolition permits in the City of New York. These new requirements, and the costs associated therewith, likely will increase the cost to complete construction projects in the City. The new rule requires all permit applicants to name the City as an additional insured on the policy that will provide general liability coverage to the applicant. Furthermore, except for projects involving one and two-amily homes, the new rule also requires permit applicants to procure and maintain project-specific general liability coverage with coverage limits ranging from no less than $5 million to $25 million depending on the type of work to be performed (i.e. foundation, demolition, new building/major renovation), the height of any adjacent structure and the height of the structure under construction. In addition, contractors applying for permits for projects at which a tower crane will be used must procure project-specific general liability coverage with per-occurrence limits of at least $80 million, regardless of the Project's scope of work. Contractors will be required to show proof that these new insurance requirements are being complied with as part of the application process. Importantly, the requirements apply not only to new permit applicants, but also to those seeking to renew previously issued permits. Moreover, the rule also requires all permitees, to the fullest extent permitted by law, to indemnify, defend and hold the City, its officials and employees harmless against claims arising out of the construction project for which the permit was issued. The rule's indemnity provision is similar to the indemnity provision found in many owner-contractor and contractor-subcontractor agreements in that it requires the permittee to reimburse the City for all of the costs it incurs in connection with a claim, including attorneys' fees. Importantly, the indemnification provision applies regardless of whether the claim is covered by insurance. The new rule also sets forth certain terms that the contractor's general liability policy can and cannot contain. For instance, every policy must contain an endorsement stating that the City's coverage thereunder cannot be cancelled or modified unless thirty (30) days prior written notice is sent to both the contractor and the Commissioner of the Department of Buildings. Ten days prior written notice is required if the insurer seeks to terminate the policy for non-payment. The new rule also prohibits policies from containing certain coverage exclusions, including completed operations, contractual liability coverage and explosion, collapse and underground coverage exclusions. In the past, many contractors have opted to obtain policies containing some or all of these exclusions in an effort to reduce the premium paid for the policy. These new requirements will likely lead to contractors having to pay higher premiums for insurance on nearly every type of project, a cost that is typically passed along to project owners. To avoid, defaults by their contactors, owners should make sure that their contractors comply the new DOB requirements. In addition, owners should make sure that their contractors include language in their subcontracts that requires subcontractors to name the City of New York as additional insured on their general liability policies, and also language requiring adding the City as an additional indemnitee of the subcontracts indemnification provision. Andrew Richards, Esq., is partner at Kaufman Dolowich Voluck & Gonzo LLP, Woodbury, N.Y.