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Mitigating the impact of the New York Labor Law

Claim management and risk control techniques

Workers Compensation

October 26, 2017

The New York Labor Law contributes to a highly litigious environment in the state imposing strict liability on contractors and owners for “gravity-related” injuries.

Construction in New York State has and continues to be subject to a highly litigious environment. The primary culprit is Labor Law section 240/241, commonly referred to the as the “Scaffold Law,” which imposes strict liability upon contractors and property owners for all “gravity-related” injuries. This law does not provide for any consideration of the injured employee’s fault — essentially rendering defendants to be presumed at fault even if the worker’s negligence contributed to the accident. New York is the only state left that has a scaffold law, and the cost to insure a construction project in New York is 10 times higher than it is in other states. The Scaffold Law also increases moral hazard, making it more likely to have injuries and related litigation.

In New York, Workers’ Compensation Exclusive Remedy Statute bars an employee injured on the job from making a liability claim against their employer. However, the injured worker can still pursue an action against a responsible party and because of contractual obligations this liability may flow back down to the employer, circumventing the Exclusive Remedy Statute. This is known as an action over claim and it is very popular in New York. In fact, on a wrap-up construction project, approximately 80% of general liability claims have a correlating workers’ compensation claim.

In recent years, the courts have broadened their interpretation of what constitutes a gravity-related accident, which has led to the unpredictable verdict amounts and large settlement values in these cross over claims. Given this significant shift in cost, the commercial insurance industry has taken necessary steps to mitigate their exposures, either by transferring significant risks to the policy holders by structuring programs with large or matching deductibles and/or fronted policies and raising premium prices, or by restricting their appetite significantly, including not taking on construction risks in New York.

This white paper explains the history of Labor Law, the challenges it presents and practical steps owners and contractors can take to try and manage this exposure. Recommended loss prevention and mitigation strategies are discussed, as well as specific actions owners and contractors can take in the claims management process to put themselves in the best possible position to defend a Labor Law claim.

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