NY Reforms: Chaos for Carriers?

September 19th, 2007 by

When you have a problem, you pass a law to fix it. That’s the theory, anyway. Sometimes, the legislative solution creates big, new problems. Take New York – please! In trying to solve the very real issue of rampant under-insurance and premium avoidance in the construction industry, the state has crafted an innovative solution. But the solution creates very big problems, indeed.
Under the revised comp statute, all out of state employers doing work in New York are required to carry a full, statutory NY state workers comp policy. New York must be listed specifically on the information page of the policy. The standard “other states” coverage (item C) is not considered adequate proof of coverage.
This may sound innocuous, but it’s not. First, consider the problem in defining what “working in New York” means. The term is not defined by statute, but has evolved under case law. Coverage may be required for anyone coming into the state while “in the course and scope” of employment: this would include sales and delivery people, construction workers in for a day or a week, possibly even business travelers attending a trade show.
Once you figure out who’s working, you’re stuck with the issue of proving coverage. For carriers licensed to write insurance in New York, it’s a bureaucratic nightmare, but feasible. You re-issue the policy, naming New York on the information page. But when do you do this? When is the proof of coverage required? Do you have to document coverage even when the New York exposure is miniscule or can you retrofit coverage after an injury occurs?
And what about insurance carriers who are not licensed in New York? These carriers cannot list New York on the information page, because they cannot write policies in the Empire state. So they are either forced to secure a license (how long will it take and how much will it cost?) or decline covering out-of-state employees working in New York. If they forego the licensing process, they may have to cut a check to the NY State Fund to cover payrolls for work performed in New York, at the current NY rates. Yikes! (Given the fear and uncertainty that this new requirement has already raised, there are agents for NY licensed carriers visiting neighboring states, trying to poach business from agents who lack a NY licensed carrier.)
By now you’re probably thinking that NY will work out the kinks before the new law goes into effect. Technically, the law already is in effect – it began on September 9, 2007. Of course, no one can figure out how to go about implementing it. Last week the Workers Comp Board held a conference call for interested parties. Boy, where there ever interested parties – from as far away as California. Unlicensed carriers raised the specter of a lengthy and expensive licensing process in NY. Agents asked about their own exposure in trying to keep insureds informed of their obligations under the new law. To all the many valid questions, the Board responded with a resounding “We have no idea what to tell you…We have to work it out with the governor’s staff and the Division of Insurance.”
According to the Independent Insurance Agents of NY (IIABNY), the Board is “reviewing” the requirements. Implementation of the new law is “on hold.” The Insider humbly suggests that the Board and the Governor kick this one back to the legislature. The new requirements are fatally flawed and no amount of tinkering can fix the situation. The problem of premium avoidance in construction is legitimate. This particular remedy, however, creates chaos within the insurance industry. After all, you don’t cure a headache with Actiq or Oxycontin, do you? (Then again, this is workers comp …)