OGC Op. No. 04-03-06

The Office of General Counsel issued the following opinion on March 4, 2004, representing the position of the New York State Insurance Department.

Re: Workers’ Compensation and General Liability Insurance, Rate Calculation


1. Does the rating of workers’ compensation insurance take into account the larger payroll costs of unionized contractors as opposed to non-union contractors?

2. Does the rating of general liability insurance take into account the larger payroll costs of unionized contractors as opposed to non-union contractors?


1. Such account is taken.

2. Sufficient facts were not provided to allow for a meaningful response.


The inquirer owns a construction company that purchases workers’ compensation and general liability insurance. The premiums the inquirer’s firm is charged for such are based upon the inquirer’s payroll, which includes both the actual wages the inquirer pays and contributions the inquirer makes to various benefit funds operated by the unions with which the inquirer’s firm has collective bargaining agreements. The inquirer believes that his firm is under a competitive disadvantage when compared to non-union contractors, since the non-union contractors pay less in wages and do not provide fringe benefits. Thus, the inquirer believes the same aggregate payroll base covers more employees with a concomitant increase in risk to the insurer.


The requirement for all property/casualty premiums, including workers’ compensation and general liability, is set forth in New York Insurance Law § 2303 (McKinney 2000): such rates "shall not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers."

Workers’ Compensation Insurance

In accordance with New York Insurance Law § 2305(b)(1) (McKinney 2000 and 2004 Supplement), rates for workers’ compensation insurance are subject to prior approval by the Department. The New York Compensation Insurance Rating Board (Board) is licensed as a rate service organization pursuant to New York Insurance Law § 2313 (McKinney 2000) and establishes classifications and rates for workers’ compensation insurance. As authorized by New York Insurance Law § 2306 (McKinney 2000), all insurers issuing policies of workers’ compensation insurance, because they are members of or subscribe to the services of the Board, have delegated to it their obligation to classify and rate risks.

Some time ago, the Board became aware that union construction contractors tended to pay higher wages and provide more fringe benefits. Accordingly, the Board instituted a Premium Adjustment Program for construction contractors (other than those engaged in the construction of one or two-family residential housing), which is set forth as Rule IX(I) in the Board’s Manual. The Rule arrays average hourly wages, including fringe benefits, and gives an increasing credit, ranging from no credit for wages under $15.00 per hour to a credit of .35 for hourly wages of $39.50 and above.

In addition, New York Insurance Law § 2304(e) (McKinney 2000), added by 1998 N.Y. Laws 135, provides, for commercial insurers, until December 31, 2005:

(1) Premiums for workers" compensation insurance for employments classified under sections two hundred twenty [public works contracts], two hundred forty [elevation risks] and two hundred forty-one [construction and demolition] of the labor law, provided such employments are classified under each of said sections, shall be established on the basis of payroll and a formula which provides appropriate credits, provided such credits shall not apply to payroll in excess of the payroll limitation amount set forth in . . . this subsection. With the exception of employments engaged in the construction of one or two family residential housing, premiums shall be calculated in accordance with the following limitations: . . . D) For policies with rating anniversary dates after September thirtieth, two thousand two, an employer's payroll for premium computation purposes in the affected construction classifications shall be the actual weekly payroll per employee for the number of weeks employed subject to a maximum of the greater of seven hundred fifty dollars per week or the weekly payroll amount upon which the maximum weekly benefit is based, per employee.

. . .

(3) The base rates applicable to employments classified under sections two hundred twenty, two hundred forty and two hundred forty-one of the labor law, provided such employments are classified under each of said sections, shall be adjusted by the New York compensation insurance rating board . . . to reflect the payroll limitations required by this section as they separately affect such rates for work actually performed within each of the following geographic territories: (A) Territory 1 comprising the counties of the Bronx, Kings, New York, Queens, and Richmond; (B) Territory 2 comprising the counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester; and (C) Territory 3 comprising all other counties within the state.

That same chapter enacted New York Workers’ Compensation Law § 89(2) (McKinney 1994 and 2004 Supplement) to provide a similar credit requirement for policies issued by the State Insurance Fund.

In accordance with the directives of New York Insurance Law § 2304(e) and New York Workers’ Compensation Law § 89(2), the Board has promulgated Rules V(G) and VI(I) to effectuate the credit.

General Liability Insurance

In accordance with New York Insurance Law § 2305(a), rates for general liability insurance are no longer subject to prior approval. In accordance with New York Insurance Law § 2344 (McKinney 2000 and 2004 Supplement) and N.Y. Comp. Codes R. & Regs. tit. 11, Part 161 (2000), general liability policies are subject to "flexible rating". While many insurers utilize the services of a rate service organization, such as the Insurance Services Office, many insurers develop their own independent classifications and rates.

Since the possible combinations and permutations of classifications and rates are numerous, without information as to the insurer of the inquirer’s firm and the insurer providing coverage to a particular non-union contractor, the Department is not in a position to respond to the inquirer’s concerns. If the inquirer wishes to pursue this matter with relation to general liability insurance, information as to his firm’s coverage and the coverage of a particular non-union contractor should be sent to:

Market Division
Property Bureau
New York State Insurance Department
25 Beaver Street
New York, NY 10013.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.