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Here’s a nightmare New York Labor Law scenario we recently heard from a risk manager for a New York-based real estate company:
A vendor’s employee fell off a scaffolding while working on the facade of a commercial property and was injured. Even though they received workers’ compensation they filed a lawsuit against the property owner.
The property owner and management company were doing the right things to protect themselves from insurance risk. They had checked the vendor’s COI and endorsements and required that they be listed as an additional insured. With that in mind, they tendered a claim to their vendor’s insurer and assumed they would step in to defend them. They were right…for the most part. The vendor’s insurer ended up paying over $8M to settle the suit, but the property owner was still forced to pay $500K.
How did this happen even though they had checked their COI and endorsements? This property manager and property owner found out the hard way that some insurance gaps can’t be found on an ACORD 25 form. How could they have prevented this? First, we need to understand how a unique set of laws in New York State allowed this lawsuit to go forward even though the vendor’s employee received workers’ compensation.
New York Labor Law: Creating exposure for property managers, developers, and owners
New York Labor Law was enacted in 1938 to protect workers on commercial properties in the case of injuries or death. While workers’ compensation is designed to ensure injured employees still get lost wages and medical care from their employers without a lawsuit, New York Labor Law puts absolute responsibility on property owners and managers to maintain safe workspaces. This allows employees of your vendors to sue the property owner and property manager who hired their company.
And unfortunately, the potential consequences of a NY Labor Law claim could be devastating.
The impact of a NY Labor Law related lawsuit
If the immediate financial impact of a settlement from a NY Labor Law claim wasn’t bad enough, there can be long term consequences for your building’s insurability. According to Jason C. Schiciano, CPIA, President at Levitt-Fuirst Insurance, all it takes is one NY Labor Law claim to:
- Increase renewal premiums by 200 percent or more for years to come.
- Cause limitations or exclusions in coverage for similar types of claims in the future.
- Cause your carrier to impose penalties for failure to require contractor risk transfer and policy vetting
- Limit your ability to secure favorable renewal outcomes in a tightening NY insurance market
How can you protect yourself from one of these nightmare outcomes? First, let’s review the three key sections of NY Labor Law that allow for these lawsuits.
Three sections of NY Labor Law to note:
1) Section 200 mandates that building owners and managers ensure safe work environments.
2) Section 241(6) holds building owners strictly liable for injuries caused by inadequate safety equipment, unless they can prove the worker was at fault (which is hard to prove in a court of law).
3) Section 240(1), or the “Scaffold Law”, imposes absolute liability on building owners, contractors, and project managers for gravity-related accidents, regardless of the worker’s employment status or fault.
In the example the risk manager shared with us, it was Section 240(1) that the vendor’s injured employee used to sue the property owner. Because the worker was injured in a gravity-related incident, they had cause to sue due to the absolute liability placed on the building owner.
But wait—why was the property owner still on the hook for $500,000 if they tendered a claim to the vendor’s insurer? Here’s where the insurance gaps that can’t be found on an ACORD 25 form come into play. The vendor’s insurance policy contained a New York Labor Law “Action Over” exclusion, which is NOT visible on a COI or endorsement. An exclusion to an insurance policy is language that states an insurer will either only pay a certain amount, or not pay at all, in the instance that the accident listed was excluded. In this case, the exclusion restricted the amount the vendor’s insurer would pay out in the specific event of a NY Labor Law claim, meaning the property owner was still liable for part of the settlement amount.
NY Labor Law Exclusions: What they look like and how to spot them
How can you protect your organization from NY Labor Law exclusions? There’s only one foolproof way: checking your vendor’s full insurance policies for exclusionary verbiage. Here’s one example of how an exclusion might be phrased.
This is a very straightforward example of a NY Labor Law exclusion that you couldn’t find on a COI or endorsement. The passage states clearly that the insurer “will neither defend or indemnify any insured” in the case a suit or claim is brought about under the NY Labor Law sections we listed above.
Unfortunately, it’s not always that easy to spot NY Labor Law exclusions when checking vendor insurance policies. The language used in these exclusions can be sneaky. Here’s one example where NY Labor Law isn’t mentioned explicitly, but context allows us to see that it would be excluded.
As NY Labor Law imposes “absolute liability,” we can see that language in (ii) would indicate this insurance isn’t applicable to a third-party vendor working on a property. In addition, the bottom section excluding coverage for damages due to “bodily injury” is an absolute exclusion that would keep an insurer from having to step in for any such claim.
It’s never been more important to learn about how to review vendor insurance policies for troubling exclusions, seeing as the amount of NY Labor Law related claims has gone up 500% since 1990.
Learn more about reviewing NY Labor Law exclusions in our webinar recording
We be hosted a webinar on March 28th at 1pm EDT with Jason C. Schiciano, CPIA, President at Levitt-Fuirst Insurance that dove even deeper into spotting troubling exclusions lurking in your vendor insurance policies. We covered:
- Different verbiage used for NY Labor Law exclusions
- How to spot NY Labor Law exclusions when reviewing vendor insurance policies
- How to protect yourself from NY Labor Law related exposure