In the shadows of New York’s soaring skylines, a financial sleight of hand is silently eroding the foundation of fair competition in construction. While union contractors play by the rules—providing living wages, comprehensive benefits, and rigorous safety standards—many powerful corporations are exploiting captive insurance schemes to artificially deflate their bids by millions. This isn’t merely clever accounting; it’s a calculated strategy that undercuts unionized labor, compromises worker safety, and creates an uneven playing field where those who protect workers are systematically disadvantaged. This article exposes how these schemes operate, their impact on unionized workers, and what unions can do to fight back.
What Is Captive Insurance?
Captive insurance companies are wholly owned entities created to insure their parent organizations’ risks. Think of captive insurance as a company creating its own insurance company instead of buying insurance from an independent provider. Large corporations set up these “captive” insurers to cover their own risks. Used legitimately, they can manage risk and reduce costs. However, in construction, captives are often exploited to manipulate insurance costs, dodge taxes, and bypass worker protections, giving non-union contractors an unfair edge.
How Captives Manipulate Costs
Captives allow parent companies to control premium pricing, often underpricing them to suppress expenses or avoid reserving for liabilities. This creates artificially low bids that union contractors, who pay fair insurance rates, cannot match. Firms using captives win contracts by reporting lower insurance costs, sometimes by millions, driving down wages and safety standards.
Legally, such practices may constitute sham transactions under the Internal Revenue Code, flagged by the IRS as abusive tax schemes.[i] Weak enforcement and offshore domiciles like Bermuda enable companies to shift funds with minimal oversight, prioritizing tax evasion over risk management.
The Cost to Workers
Captive insurance creates conflicts of interest when workers are injured. Unlike independent insurers, captives are controlled by the same parent company, incentivizing claim denials or delays to save costs. Injured workers may wait months or years for compensation, facing mounting medical bills and financial hardship in an already dangerous industry.
Undermining Union Labor
Captives allow contractors to bypass collective bargaining agreements by suppressing claims or delaying benefits, weakening health, safety, and compensation protections. Non-union firms leveraging captives gain a pricing advantage, underbidding union contractors and eroding union leverage. This threatens job security, wages, and workplace standards.
The impact is clear through tax avoidance, where captives enable tax dodging, unlike union contractors who follow regulations. They create a bidding advantage where artificially low bids help non-union firms win contracts. This leads to eroding standards as captives proliferate and industry-wide safety and wage standards decline. Additionally, captives weaken bargaining by undermining negotiated worker protections.
Union contractors face a dilemma: lose bids to underbidding competitors or cut corners to compete, risking worker safety.
Conclusion
Captive insurance, when abused, is a direct threat to New York’s unionized construction workers. These schemes enable contractors to manipulate costs, skirt taxes, and weaken labor protections, tilting the playing field against fair competitors. Without intervention, captives will continue to erode wages, safety, and job security in one of America’s most dangerous industries.
Unions must demand transparency, advocate for oversight, and push for legislative reforms to ensure captives serve as legitimate insurance tools, not weapons against workers. The future of organized labor and the safety of construction workers depend on confronting this hidden threat now.
Eric Goldman, Esq. and Shahar Azoulay, Esq. are construction accident attorneys at Liakas Law, P.C., a family-run, community-based firm in New York City specializing in labor law and insurance disputes. For more information, call (212) 937-7765.
Treasury and IRS propose regulations identifying micro-captive transactions as abusive tax transactions. IR-2023-74, April 10, 2023. Accessed on 5/25/2025, https://www.irs.gov/newsroom/treasury-and-irs-propose-regulations-identifying-micro-captive-transactions-as-abusive-tax-transactions.
