The Office of General Counsel issued the following opinion on July 12, 2005, representing the position of the New York State Insurance Department.
RE: Bid Credit For Insurance Under NY Ins Law § 2505
May a general contractor that is purchasing wrap-up insurance1 for a non-public construction project require a bidding subcontractor to submit payment, in lieu of providing a credit in its bid, in the amount that the subcontractor would have to pay if it were to purchase its own insurance?
No, a general contractor that is purchasing "wrap-up" insurance for a non-public construction project may not require a bidding subcontractor to submit payment, in lieu of providing a credit in its bid, in the amount that the subcontractor would have to pay if it were to purchase its own insurance.
No specific facts were provided.
N.Y. Ins. Law § 2505 (McKinney 2000) states:
(a) In any building or construction contract bid, negotiated or executed except as described in section two thousand five hundred four of this article, no contractor or subcontractor shall be required to pay premiums or related charges for policies of insurance or surety bonds specified in connection with such contract on policies or surety bonds acquired by an owner or other contractor. No contractor or subcontractor shall be required to make application to any particular insurance company, agent or broker for, or to obtain or procure therefrom, any policy of insurance or surety bond specified in connection with such contract, or specified by any law, general, special or local.
(b) This section shall not, however, prevent an owner or other contractor from providing all insurance policies or surety bonds required by such contract without reimbursement from the contractor or subcontractor. Nor shall it preclude such owner or contractor from requiring that the contractor or subcontractor provide a credit in his bid which reflects the amount the bidding contractor or subcontractor would otherwise add if he provided his own insurance as required in the bid specifications. This section shall not deny an owner or contractor the right to approve the form, sufficiency, or manner of execution, of any insurance policies or surety bonds furnished by the insurance company selected by the bidder.
Thus, while a general contractor of a non-public construction project may purchase wrap-up insurance to cover a subcontractor working on such project for losses arising therefrom2, the general contractor is prohibited from charging the subcontractor for the premium or other related charge on the wrap-up insurance. The general contractor may, however, require a bidding subcontractor to provide a credit on its bid, which reflects the premium the subcontractor would have paid had it purchased its own insurance for the project.
The statute specifies that a credit to a bid may be applied. The statute does not allow for any substitutions in place of credit application. Hence, a general contractor that is purchasing "wrap-up" insurance for a non-public construction project may not require a bidding subcontractor to submit payment, in lieu of providing a credit in its bid, in the amount that the subcontractor would have to pay if it were to purchase its own insurance.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 Wrap-up insurance refers to a policy, or series of policies, written to cover a specific project and insuring all of the persons and entities that work on such project.
2 N.Y. Ins. Law § 2504 applies to public construction projects. It generally prohibits wrap-up insurance in that it prohibits any officer or employee of New York State or of any public corporation (including political subdivisions of the State) or public authority from requiring a bidder, with respect to any public building or construction project, to obtain insurance from any particular insurer, agent or broker, subject to certain excepted types of public entities or projects (i.e., light rail, heavy rail rapid transit, and commuter railroads).