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How’s Business?: Insurance woes

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Insurance is broken down into a number of categories. One sector that is a hot issue is contractors’ insurance, which is of vital importance not only to contractors, but indirectly to all of us, since increased insurance premiums inevitably drive up the price of construction.

Whopping premium hikes as high as 300 percent have made it increasingly difficult to get coverage. Contractors are considered lucky to get insurance at all. Frank Macchio, president of Construction Services Associates Inc., at 150-30 12th Rd. in Whitestone, said he was able to secure insurance, but at a cost increase of nearly 50 percent. He also explained the effect of such increases on his business in relation to layoffs, salary cuts and cost-cutting.

With this downtrend in the economy, prices cannot be raised to compensate for increased insurance premiums, which therefore leads to a dilution of profits, Macchio said. Then there is the question of the New York state labor law sections 240 and 241, which place total responsibility on building owners and contractors if a worker is hurt.

It’s a New York exclusive, with no other state having such a law. Here’s how it works: Under this law, a worker can sue his or her employer on the basis of an unsafe working environment. So the builder gets sued and subsequently sues the contractor. But the contractor is odd man out because he or she has no one to sue and can only defend.

What rubs salt into the wound is that workers can sue even if they are negligent in following standard safety procedures. The end product is enhanced lawsuits, which lead to ever-increasing insurance premiums.

Sections 240 and 241 of the New York state labor law are not really contributing factors since the law has always been there and is really only a small part of the equation, Macchio said.

The real issue in contractors’ insurance is not the cost, but the ability to secure insurance coverage, said Macchio, who added that there is sensitivity to increases, of course.

So how’s business for contractors relative to insurance costs and availability? Macchio said that business has been maintaining itself, albeit with reduced profit margins and more work needed to maintain former revenue levels.

Joe Palumbo is the fund manager for The Palco Group, Inc. and can be reached at palcogroup@aol.com or 718-461-8317.

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