CONSTRUCTION PRACTICE
BLUEPRINT
October 2014
www.willis.com
NEW YORK LABOR LAW
Construction in New York State has historically been subject to a
highly litigious environment. While employees are protected by the
New York Workers’ Compensation Law, the Legislature has also
passed specific statutes broadening rights of recovery for injured
construction workers under certain types of claims. These laws
(Labor Laws 200, 241(6) and 240(1)), allows workers to bring suit
against property owners and/or their agents,(typically general
contractors), for injuries sustained at construction sites. In
response to a growing number of cases the commercial insurance
industry is reacting aggressively to mitigate their exposures to these
scenarios. Underwriters are restricting their writings significantly
by not taking on construction risks in New York, by increasing
deductibles dramatically and by raising prices to the point where
projects are impacted as costs escalate.
The primary culprit, Labor Law section 240 (1), commonly referred
to as the “Scaffold Law” imposes a standard of absolute liability upon
contractors and property owners for all “gravity related” injuries.
As currently written, the law does not provide for any consideration
of the injured employee’s fault—essentially, defendants are
automatically presumed to be at fault. The proposed legislation
would replace the absolute liability standard (full liability regardless
of fault) with the more fair comparative negligence standard
(liability is proportional to fault) only in situations where a worker’s
injury is found to have been caused by that worker’s failure to
follow safety training or use available safety devices, intoxication, or
commission of a crime.
This paper focuses on the proposed bills Morrelle (A.2835) and
Galvin (S.6816). Under these proposed bills, a new Section 1414 is
added to the Civil Practice Law and Rules (CPLR) which states that
contractors who provide safety training and equipment, including
OSHA safety courses, have the right to demonstrate in court that the
worker contributed to the injury and therefore utilize the CPLR’s
contributory negligence standard. Only if a contractor proves that
the worker failed to use the safety equipment provided, disobeyed
safety directions, or worked while under the influence of drugs or
alcohol would the contributory negligence rule be invoked. This
is a fair and equitable approach that insures both the safety of
the workers and the workplace as well as a course of defense for
responsible contractors.
LABOR LAW
SECTION 240 (1)
Labor Law Section 240(1) imposes absolute liability
upon owners and general contractors, regardless of
the comparative fault of plaintiff. Once a plaintiff
succeeds in establishing a violation of this section,
the defendant is essentially defending an inquest on
damages. The exposure is especially high when the
worker claims that his injuries prevent him from
returning to work. Many times, lack of education and/
or training renders the worker’s prospects for future
employment in other jobs paying similar salaries
unlikely. A union worker in his/her twenties or
thirties, earning a high salary with maximum benefits,
who asserts claims for large future lost wages and pain
and suffering presents the potential for a substantial
jury verdict.
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DEFENSES
Without the proposed legislation, the defenses
to a Labor law §240 cause of action are limited.
Plaintiff’s own negligence is not considered,
unless it can be considered to be the sole
proximate cause of the injury. In Blake v.
Neighborhood Housing Services Of New York
City, Inc., 1 N.Y.3d 280, the Court of Appeals
addressed the issue of strict or absolute liability
under Labor Law §240(1).
Plaintiff, who operated his own contracting
company, was working alone on a renovation job
in a two-family house in the Bronx. Defendant,
Neighborhood Housing Services of New York
City, Inc. (NHS), a not-for-profit lender, provided
low-interest financing to facilitate the project.
NHS dispatched a rehabilitation specialist to
the premises to assess the scope of work and
the amount of the loan. NHS subsequently
prepared a work estimate and provided a list of
contractors. Plaintiff was hired.
Plaintiff set up an extension ladder that he
owned and had used frequently. Plaintiff
acknowledged at his deposition that the ladder
was steady, had rubber shoes and was in proper
working condition.
While performing rust removal on a window, the
upper portion of the ladder retracted, causing
the plaintiff to sustain injury. Plaintiff sued the
homeowner and NHS alleging a violation of
Labor Law §240(1). Plaintiff also admitted at his
deposition that the ladder was securely placed,
not broken or defective and that no one needed
to hold the ladder while he was using it.
At trial, plaintiff conceded that he could not
identify a defect in the ladder and testified that
he was not sure if he had locked the extension
clips in place before climbing the ladder.
After trial, the jury found that the ladder used
by the plaintiff was constructed and operated
to give proper protection to the plaintiff. The
Court concluded that the evidence leads to the “inescapable conclusion
that the accident happened not because the ladder malfunctioned or was
improperly placed, but solely because of plaintiff’s own negligence in the
way he used it.”
The Court of Appeals noted that defenses to Labor Law 240(1) claims
have been watered down by the Courts, not the legislature. More
specifically, the Court re-emphasized that neither it nor the legislature
have ever suggested that an owner or general contractor should be
treated as an insurer after having furnished a safe workplace. If,
however, the plaintiff’s actions constitute culpable conduct, it will not
exonerate a defendant if Labor Law Section 240(1) has been violated.
Essentially, the Court of Appeals in Blake has reiterated its prior
decisions and highlighted that there can be no liability under §240(1)
where there is no violation and the worker’s actions are the “sole
proximate cause” of his accident. To find otherwise would be to make
an owner and/or a general contractor who has complied with the safety
regulations into an insurer and that is not what the legislature intended.
Instead, the legislature has enacted a “no-fault” workers compensation
to address workers injuries where the worker is entirely at fault and
there has been no Labor
Law violation.
The recalcitrant worker defense is available in those situations where
plaintiff has affirmatively refused to follow direct instructions. The
Court of Appeals in Cahill v. Triborough Bridge and Tunnel Authority, 4
N.Y.3d 35 (2004) expanded this defense, which is not contained in any
statute and is predicated upon the idea that the statutory protection
does not extend to workers when adequate and safe equipment is
made available to them but refuse they to use it. Prior to the court’s
decision in Cahill, owners or general contractors had to prove that
directions regarding safety devices were provided to workers almost
contemporaneously with the workers accident.
In Cahill, the Court held that the giving of the instruction or direction
and any lapse of time between same will not undermine the “recalcitrant
worker” defense in and of itself. In Cahill, the plaintiff was instructed to
use his safety harness and lanyard weeks before the incident occurred.
No specific direction was given to the plaintiff on the date of the incident.
Then, while ascending a “form” without utilizing his available safety
harness, the plaintiff fell approximately ten to fifteen feet to the ground.
The Court of Appeals held that the plaintiff’s failure to utilize the
available safety devices, when taken in conjunction with the fact that he
ignored the direction issued weeks earlier by a supervisor, meant that he
met the definition of a “recalcitrant worker”. As set forth in Blake, where
the plaintiff’s recalcitrant acts constitute the “sole proximate cause of
the accident”, they dismissed the plaintiff’s Labor Law §240(1) cause
of action.
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WHAT COVERAGES ARE
IMPACTED BY THE VARIOUS
LABOR LAW STATUTES?
The impact of these cases are focused on
Commercial General Liability (CGL) and related
Excess or Umbrella Liability placements. This
makes sense in light of the fact that these policies
typically protect against claims arising out of
the Legal Liability of the policy holder and the
various statutes impose legal liability.
As a result, the thousands of cases that we
have seen over the last few years have had
a major impact on the profitability of these
coverages for insurance companies .This is now
having a dramatic impact on how carriers view
construction liability in New York. They are
taking a number of actions to try to address the
situation. Ultimately, costs will be borne by all
policy holders in New York unless the underlying
statutes are addressed by the legislature. Willis
is working with a number of organizations to
push for reform and we outline these efforts
below. Until this occurs though we expect
the rising costs to have an impact on not just
insurance but ultimately construction costs.
CARRIER RESPONSE
Changes we’ve seen in the NY Construction
Insurance Marketplace in 2014 pursuant to
Labor Law:
PRACTICE POLICIES
ƒƒ 20–40% premium increases
ƒƒ Minimum Primary GL limits increased to
$2M/$4M/$4M
ƒƒ Some carriers requiring $5M/$10M/$10M
ƒƒ Many smaller placements have been forced
to be placed in the wholesale market to get
coverage
OCIPS/CCIPS
ƒƒ Maximum Rates have increased to almost
double of what we were seeing in the past
2 years
ƒƒ Standard Primary GL limits of
$2M/$4M/$4M are no longer acceptable
for an attachment point for lead Umbrella/
Excess Carriers
ƒƒ Initially, the required limits increased to $3M/$5M/$5M then quickly
increased to $5M/$10M/$10M
ƒƒ Most carriers can provide $3M/$5M/$5M but have difficulty getting
the reinsurance support to quote $5M/$10M/$10M
ƒƒ Buffer quotes can fill gaps but can be very expensive and few carriers
are offering
ƒƒ Deductibles increased from $250K WC/$500K GL to $500K WC and
$750K to $2M for GL
TRENDS IN NYC LOSSES
It’s clear to the insurance industry that writes wrap-ups in NYC that GL
losses have been trending higher. ACE Insurance did a GL loss analysis
on the expired NYC-projects they had from 2006 through 2010, and
found the following:
This is based on approximately $290M in trended actual payroll
exposure. The loss trend is obviously up. This analysis doesn’t include
current active project data but the assumption is that the developed loss
rates will be significantly higher than the 2010 numbers.
We also have pure, undeveloped losses based on incurred loss dollars:
Of the Total Incurred – UNDEVELOPED – GL loss dollars, capped at
$2,000,000 (the traditional per occurrence limit):
ƒƒ 48.1% of the total incurred are loss dollars excess of $500,000
ƒƒ 25.6% of the total incurred are loss dollars excess of $1,000,000
As for Willis-specific deals that are now expired – this is the performance on
the primary program:
PROJECT #1
Effective: 8/19/2004 – 12/31/2008
Loss Valuation Date: 3/25/2014
WC Loss Ratio: 221.4%
GL Loss Ratio: 182.1%
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Total Loss Ratio: 208.8%
Estimated Combined Ratio: 227.9%
Number of GL claims XS of $1m:
Which are LL240 Related:
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PROJECT #2 (FIT OUT)
Effective: 4/1/2007 – 4/1/2010
Loss Valuation Date: 3/28/2014
WC Loss Ratio: 113.7%
GL Loss Ratio: 161.1%
Total Loss Ratio: 138.1%
Estimated Combined Ratio: 156.6%
Number of GL claims XS of $1m:
Which are LL240 Related:
1
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PROJECT #3
Effective: 7/1/2007 – 6/30/2013
Loss Valuation Date: 3/20/2014
WC Loss Ratio: 168.4%
GL Loss Ratio: 245.4%
Total Loss Ratio: 216.6%
Estimated Combined Ratio: 236.4%
Number of GL claims XS of $1m:
Which are LL240 Related:
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Of the GL claims excess of $1,000,000, 78% are
Labor Law 240(1) claims.
The right charts further highlight the significant
difference in loss data for NY compared to other
states. These charts depict the ISO loss costs for
both Bridge/Elevated Highway Construction
and Structural Metal trades. NY is more than
double that of NJ, three times more than MA and
quadruple that of CA. Given the urgent need for
infrastructure repairs in NY, these are
alarming figures.
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CASE EXAMPLE
It’s important to understand why NY Labor Law
cases have such high values when compared
to GL losses in other states. The best way to
illustrate this is with an example:
A 35 year old construction worker is
working on steel while not adequately tied
off and falls 12 stories. He suffers a fractured
right arm, a torn rotator cuff, and an injury to the
lumbar spine all requiring surgery. Even though
the building owner or the other party could argue
that the worker should have tied off, the injured
man can still sue based on strict liability.
The injured worker makes $3000 a week not
including union benefits and only has a high
school education. He treats with his own
physician (In NY, the insurance company does
not have the ability to direct treatment.) who
determines that he will never return to being
a steelworker.
He is paid $800 a week in WC indemnity benefits
to help offset his lost wages. The remaining
$2200 a week becomes the major component
of his GL lawsuit (past and future lost wages).
With a work life expectancy of 62, the lost wages
component of his claim alone will be $2,516,800
($2200 per week for 22 years). Once you
consider lost union benefits, pain and suffering
and the need to pay back 2/3 of the WC lien, the
value of the case will be anywhere between $3M
and $5M.
If a judge and jury provides the plaintiff
protection under section 240 (1) of the Labor
Law, the General Contractor and Owner will be
deemed to be 100% at fault for the accident. As
you can see, these cases have a very high value
and therefore are extremely hard to underwrite.
There needs to be immediate and ardent changes
to the way we manage NY Construction projects.
SUGGESTIONS/
RECOMMENDATIONS
We support the legislation but strongly suggest
that additional steps be taken to avert the
current insurance crisis. It’s our opinion that to date, the remedial
measures taken to address the impact of Labor Law claims have been
ineffective. This is mostly due to their failure to address both loss
prevention and loss mitigation once an incident occurs.
We recommend augmenting the proposed legislation with the
following measures:
1. Requirement for use of 3D BIM Modeling to predict/address
safety hazards. 3rd Party Certification to be provided for all
projects of $30M or over in hard costs.
The technology currently exists to predict when and where most
hazards will occur that give rise to Labor Law claims. The writer
successfully used this technology on an $800M high-rise project in
Queens which completed with only one (1) lost time accident which
did not lead to a 240 claim. This was done mainly through involving
Safety/Loss Control in the Pre-Construction process, meeting
monthly over the span of one year to anticipate and prevent hazards
such as inappropriate or missing tie-off points in steel erection,
adequately staffing for debris removal to mitigate slip and fall
exposures, use of man-lifts instead of ladders/scaffolds, etc.
2. Developing a Collectively Bargained Workers’
Compensation Program
Willis of New York suggests establishing an Alternative Dispute
Resolution (ADR) program that is designed to improve the delivery of
Workers’ Compensation benefits to workers that have been injured
on the job. The claim process will be administered in accordance with
permissive labor code statutes.
The sponsor of an ADR Program generally receives the benefits of
better control over medical treatment and costs, a more efficient
return to work program and less adjudication costs. Once an injured
worker participates in the program, they generally discover additional
benefits such as swifter resolution of their claims, enhanced access to
medical treatment/services and a reduced need for the
litigation process.
The ADR Process does not withhold any rights to injured workers that
are specified in the regular state system. In addition to the rights they
have under the current system, this program will include the
following benefits:
ƒƒ On-Site Medical Trailers to provide emergency medical treatment
ƒƒ Program Representatives/Ombudsmen to contact injured
workers or answer questions
ƒƒ Claim Disputes may be resolved through a special mediation and
arbitration process using arbitors/mediators selected by a Joint
Labor-Management Committee
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The project should expect to realize a decreased number of litigated Workers’ Compensation and General Liability claims.
The claims that are filed should have lower settlement value as a result of decreased length of disability for injured workers.
All of this should lead to significantly reduced Workers’ Comp and General Liability premium costs for the project’s
Controlled Insurance Program (CIP).
We believe that this is the key to mitigating the value of Labor Law claims. As evidenced in the previous claim example, the
largest component of any Labor Law claim is the past and future lost wages. These recommendations will serve to greatly
reduce the length of disability for an injured worker- thereby reducing the value of the corresponding GL claim.
3. Establish a Joint Labor/Management Committee to address numerous safety issues germane to Construction
Sites (i.e. use of man lifts over ladders/scaffolds, etc.)
4. Requiring OSHA 10 Hour certification for all projects with 5 year renewal intervals
We believe that a better educated workforce will tend to have less injuries. It’s important that the training also incorporate
hands on training for things like PFAS (Personal Fall Arrest Systems), Ladder/Scaffold Safety, etc.
CONCLUSION
Willis is intimately familiar with all viable defenses to New York Labor Law claims and develops loss control procedures focused
on mitigating the number of gravity-related incidents for our clients. We have also handled over 5,000 Labor Law claims in
the past 10 years and achieved favorable results ranging from defense verdicts to defeating Labor Law Motions outright. We
have a vast experience in dealing with all aspects of New York Labor Law 240 (1) as well as the other components 241 (6) and
200. We continue to encourage aggressive investigative and claim handling techniques that will mitigate the Client’s overall
exposure to these Claims. We have already developed a panel of Construction Oriented Defense Counsel that deal exclusively
with defending Labor Law claims. At this point the NY Labor Laws have created significant impacts to construction owners and
contractors and we encourage all firms working or thinking of working in NY to contact us early in the process to make sure all
alternatives are examined.
CONTACTS
For additional information on the topics discussed in this issue, or any others for which our Construction Practice might
provide assistance, or to read prior issues of Blueprint, please visit our website at willis.com
Tim Walker
+1 212 915 8481
timothy.b.walker@willis.com
Lauren Gregory
+1 212 915 7823
lauren.gregory@willis.com
Chris Franks
+1 212 915 7727
christopher.franks@willis.com
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