Council: Labor Law 240/241 must be reformed
to address industry insurance crisis

Sections 240/241 of the state’s Labor Law expose New York’s property owners and contractors to unfair liability, make business insurance prohibitively expensive if it’s available at all, and drive up everyday costs for taxpayers and all New Yorkers, The Council has told the state Insurance Department.

In testimony submitted to the department on December 29, The Council wrote that New York’s construction industry faces an insurance crisis, and one caused by the uniquely shortsighted state labor law.

“This crisis may be a boon to some trial lawyers, but it is a bane for all other New Yorkers,” the testimony said. “ It’s time New York followed the common-sense lead of 49 other states and repealed this short-sighted law.”

Construction industry members have reported to The Council that their insurance industry premiums are spiraling out of control, the testimony added.
 
“Some say their insurance costs have increased as much as 500 percent in a single year. Others report one-year increases of 300 percent. Some say they cannot buy insurance at any price.”

And construction firms have found that despite higher costs, their actual coverage is shrinking, the testimony said.

”Many renewal policies have specifically excluded 240/241 issues from coverage.”

That leaves the industry with fewer and fewer options, the testimony added.

“Those carriers that remain in New York State offer 240/241 protection only with steadily increasingly premiums. This forces consumers to rely on fewer carriers within a "take-it-or-leave-it" market.”

Carriers hesitate of offer 240/241 coverage because liability under that law is extremely broad and unforgiving.

“New York’s courts have upheld this "absolute liability standard," which means property owners and their contractors have no way to defend their actions and their safety records in liability cases that fall under this statute,” the testimony said.

“Offering insurance to an industry that cannot even defend itself is fighting a losing battle. It is no wonder that general liability coverage premiums continue to increase dramatically while fewer and fewer carriers even offer 240/241 coverage.”

No other state has a law like 240/241 on the books, the testimony added. “That is forcing New York contractors to look for work in other states.”

“The costs of insurance in New York that are so needlessly inflated by 240/241 impose a new burden on New Yorkers——because it is they, after all, who ultimately pay the inflated costs of construction projects in this state,” the testimony said.

“New York’s construction companies will feel no relief until section 240/241 is reformed,” the testimony concluded.

“The state’s draconian absolute-liability standard must be replaced with a more sensible and balanced negligence-based standard. As long as the law stands as it is, premiums will continue to rise and contractors will continue to leave the state or shut their doors.”

Labor Law reform is serious business
By Dan Corbin, CPCU, CIC, LUTC
Professional Insurance Agents of New York (PIANY)

Nearly all of the state's employees are protected by the New York Workers' Compensation Law, which has proven to be effective in compensating injured workers and keeping the costs to employers manageable. However, a supplementary no-fault compensation scheme for selected workers, though tolerated for many years, is now placing a drag on the construction industry in New York. Some safe-place-to-work sections of the labor law, specifically, Sections 240, 241 and 241-a, impose an absolute liability standard upon owners and general contractors for workers injured at their job sites. Insurance industry reaction to the underlying liability problem is reaching a crisis point where insurance for contractors and building owners not only is getting unaffordable, but also is becoming difficult to obtain at any price. PIANY believes it's time for legislators to examine the cost/benefit of these laws in the context of present worker safety and the state's economic health.

The labor law
The absolute liability of Sections 240, 241 and 241-a of the labor law evolved over many years through a patchwork of legislative amendments and judicial interpretations. Before discussing each law separately, it will be helpful to present the characteristics they have in common.

1. The liability imposed by these statutes is applicable to owners and contractors and their agents (typically, construction managers). The only exception are "owners of one- and two-family dwellings who contract for but do not direct or control the work." For example, a homeowner who contracts to have the roof replaced on her home is exempt, but the owner of a retail store would not be exempt when replacing the store's roof.
    

2. The duties prescribed by these statutes are not delegable to others. For example, a contractor's assumption of the duties of the owner will not be an enforceable agreement. This, however, does not mean the owner and general contractor cannot attempt to be indemnified by others for their liability to an injured worker.
    

3. The owner and contractor are liable although they are completely free of negligence and although they do not direct or control the work. The fact that the owner and contractor exercised due care, were unaware of the hazardous conditions under the control and supervision of a subcontractor, or even were barred by law from being present at the work site while construction was in progress, is not a defense.
    

4. The liability of the owner and contractor is not reduced due to the injured employee's own negligence, even if that negligence is 100 percent responsible for the accident. It is irrelevant that the injured employee was under the influence of alcohol or drugs, disregarded instructions or refused to use safety equipment provided.
    

When liability for a breach of non-delegable duties is imposed upon someone without affording access to customary defenses, we refer to such liability as absolute. And, since the determination of liability does not hinge on the injured worker's culpability, any compensatory damages extracted from the owner and general contractor are paid regardless of fault. Without leverage in these suits, defendants are under pressure to settle with plaintiffs. At the same time, they're under pressure to expand litigation against anyone that could be compelled to share some of the damages.

One may ask why only certain types of workers are deemed worthy of this dual no-fault compensation system—workers' compensation benefits and absolute liability under the labor law. In order to identify the type of worker that is privileged with dual compensation, we turn to the specific sections of the labor law.

Section 240. This statute, commonly referred to as the "scaffold" law, was originally enacted in 1885 to impose a misdemeanor penalty on employers who knowingly or negligently furnish unsafe scaffolding, hoists, ropes or ladders to their employees. Numerous legislative revisions and judicial interpretations have led to the absolute liability imposed by this law today.

The present scope of occupational hazard encompassed by Section 240 is any gravity-related risk involving "the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure." The courts have defined gravity-related risk as the risk of accident due to falling from an elevated work surface or being struck by a falling object that was improperly hoisted or inadequately secured from an elevated work surface.

Section 241. The predecessor of Section 241, enacted in 1896, set forth specific requirements for flooring in buildings under construction and criminal sanctions for employers who violate them. The law originally covered only sites located in cities. In its present form, Section 241 is applicable to construction, demolition and excavation hazards located anywhere in the state.

Subdivisions one through four impose specific safety requirements for flooring in multi-story buildings and subdivision five requires that the openings of elevator shafts or hoisting shafts be enclosed or fenced on each floor. Subdivision six establishes a cause of action for the breach of a regulation promulgated by the commissioner of labor and applies to people lawfully frequenting the site, as well as workers.

A violation of the duties imposed by subdivisions one through five will result in absolute liability if an employee is injured from a fall. On the other hand, liability for a violation of a specific regulation under subdivision six must be established upon the negligence of someone at the job site, for which the owner and general contractor will be vicariously liable, but the employee's own negligence will serve as a defense.

Section 241-a. With minor substantive revisions since the legislature enacted Section 241-a in 1935, this statute promotes the safety of elevator shafts, hatchways and stairwells in buildings under construction or demolition. In very specific terms, it requires that workers near an opening "be protected by sound planking at least two inches thick laid across the opening at levels not more than two stories above and not more than one story below such men, or by other means specified in the rules of the board." Absolute liability is imposed upon owners and general contractors where this protection against falls is not present.

Shifting of costs after WC reform
Naturally, owners and general contractors who incur liability under Sections 240, 241 and 241-a of the labor law will want to mitigate their exposure by all means available to them. For instance, the owner and general contractor can seek contractual indemnification from other parties at the construction site and/or obligate them to obtain insurance in their favor. Potential drawbacks are that such agreements are negotiated to respond to a finite amount of damages and there is risk that an indemnification agreement will not be enforceable (due to General Obligations Law Section 5-322.1, which voids construction agreements that attempt to transfer a party's liability for its own negligence).

Another option is a third-party-over suit, which holds the promise of more effective protection. Since the employer is most likely to be the culpable party in these construction accidents, the owner and general contractor may want to sue the employer for common law indemnification (i.e., 100 percent recovery) or common law contribution (i.e., where, under Dole vs. Dow, a third party may implead the employer for its negligence in contributing to the accident). The benefit derived by impleading the employer is to make the responsible party pay the damages (although freedom from payment of this kind of damages was supposed to be the trade-off for assuming the obligation to pay workers' compensation benefits), and to allow the owner and general contractor to tap into the unlimited employers' liability coverage of the workers' compensation policy issued to the injured worker's employer. Of course, this option was severely curtailed due to the enactment of workers' compensation reform in 1996 (specifically, amendments to Section 11 of the workers' compensation law).

Following the 1996 Workers' Compensation Reform Act, owners and general contractors can access the unlimited employers' liability coverage only when a somewhat arbitrarily defined "grave injury" occurs. Otherwise, the owner and general contractor must rely on contractual indemnification and/or their own coverage and/or coverage procured on their behalf by others. The net effect of the WC Reform Act for the owner and general contractor is to revoke their ability to pass through unlimited liability in the event that an employee's injury falls outside the "grave injury" definition. Thus, owners and general contractors, who may have contributed nothing to an employee's injury, continue to have unlimited liability for which, in many cases, they are now without access to unlimited employers' liability coverage.

While the Workers' Compensation Reform Act contributes to the restoration of the "exclusive remedy" principle embedded in the workers' compensation law, it nevertheless forces the owner and general contractor, who likely have no culpability for the worker's injury, to retain the entire exposure (except for "grave injury" cases). Consequently, the owner and general contractor must pursue their protection from general liability policies and indemnification agreements. In an otherwise hardening market for contractor liability coverage, the exposure for no-fault labor law compensation to certain privileged injured workers is causing an adverse reaction from insurance companies.

Conclusion
PIANY believes that the absolute liability imposed upon owners and general contractors by labor law Sections 240, 241 and 241-a is antiquated to when no substantive safety incentives existed. While a few of the state's injured workers benefit from this supplemental no-fault scheme, it is apparent building owners, general contractors and insurance companies can no longer bear its burden of cost, which impacts the entire state's economy. Consequently, PIANY has actively sought to reform the labor law and will continue to do so in the future. 6/02