U.S. Casualty Practice U.S. Construction Practice. November NY Labor Law 240

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1 U.S. Casualty Practice U.S. Construction Practice November 2012 NY Labor Law 240

2 NOVEMBER 2012 Scaffold Law Pressures Contractors in New York New York s so-called Scaffold Law Labor Law 240 has created uncertainty and led to increased insurance costs for contractors in the state. The law holds contractors and property owners liable for damages arising from lawsuits filed in cases where an elevationrelated accident occurred on the property. Even when an injured employee ignores safety rules at a job site, the liability likely will fall to the contractor or owner. Insurers generally have responded with tight underwriting guidelines and increased prices for contractors and owners. Driven by claims arising out of the law, insurers have raised deductible rates significantly, and many insureds have purchased buffer layers to satisfy the requested attachment point for New York contractors. The situation makes it essential for contractors and owners to follow sound safety management and claims handling procedures. Foundations of the Scaffold Law The Scaffold Law s purpose is to protect workers engaged in construction activities involving heights by mandating the use of protective equipment and charging the responsibility for provision of such equipment to the site owner not the workers. The law traces back to 1885, when the failure to provide scaffolding was made a misdemeanor offense for employers. New York is currently the only state with a scaffolding law on the books that makes employers absolutely liable for worker injuries on a job site. This means that an injured worker does not have to show that the contractor owner intended to harm or was negligent in order to sue. The law has been amended multiple times over the years to increase the scope of the protection afforded to construction workers. In 1921, for example, it was amended to require slings, hangers, blocks, pulleys, braces, irons, and ropes as well as the original scaffolding. New York courts have upheld absolute liability standards such as those found in the Scaffold Law. This means that property owners and their contractors cannot defend their actions and their safety records in liability cases under this statute. New York Labor Laws 200, 240, and 241 impose a critical duty on the owners of a property where construction is taking place to provide a safe workplace during the construction process. Section 200 Safe Work Environment Statute: This statute governs all individuals and entities that control a place of employment. It says there is a common law duty to provide all employees with a safe place to work. Section 240(1) Scaffold, Ladder and Working at a Height Statute: This statute governs all premises owners and contractors, except owners of one- and two-family dwellings. It protects employees from special hazards related to height when engaged in the erection, demolition, repairing, altering, painting, cleaning, or pointing of a building or structure. Section 241(6) Construction, Excavation, and Demolition Work Statute: This statute requires that reasonable and adequate safety equipment be provided for anyone employed in construction, excavation, or demolition. 2 New York Labor Law 240

3 There are three primary things to consider in determining the applicability of the law to a given situation: 1. The injured party must be a construction worker who was exposed to dangers arising from gravity, such as falling or being hit by a falling object. 2. The defendant, a general contractor or owner, must be one of the entities liable under Labor Law 240(1). 3. The defendant must have violated Labor Law 240(1), and the violation must be the proximate cause of the employee s injuries. The owner or the general contractor is held absolutely liable since the employer has an absolute duty to provide a safe workplace. Contributory negligence on the part of the claimant is rarely accepted as a defense. New York is the last state to retain a form of scaffold law that leads to signification third party-over action lawsuits. The Scaffold Law and Insurers The scaffold law has shaken the general liability, general liability wrap, and excess markets in New York. Most insurers are now reassessing their ability to write contracting business profitability in New York City. Although the majority still write business in the five boroughs, they are doing so at higher premiums and with higher attachment points. Driven by claims arising out of Labor Law 240, deductibles of $1 million and per occurrence excess attachment points of $2 million or $5 million are increasingly common in New York. Insureds with New York labor law losses are seeing dramatic swings in their overall premiums across all lines of general liability and workers compensation insurance. In addition to pricing increases carriers are increasing deductibles. Excess insurers writing business for contractors working in New York are looking to increase attachment points for general liability for the following excess attachment points: Practice policies: $2 million/$4 million /$4 million (if no prior New York labor law losses). Project specific policies: $5 million/$10 million /$10 million. Accounts with New York labor law losses: $5 million /$10 million /$10 million. This change will result in significant premium increases in primary liability premiums or additional liability costs to purchase buffer layers to satisfy the requested attachment point for New York contractors. In other states, general liability wraps remain competitive and are considered a necessity where intermediate form indemnity and additional insured are limited by statute. They remain a standard for buildings for sale, especially residential buildings, where certainty of completed operations coverage through the statute of repose is necessary. Exemptions to Labor Law 240 The law exempts single- and two-family homeowners unless they exercise control over the work. Also exempt are professional engineers and architects, so long as they are not directing the work being performed. All contractors and owners who are performing erection, demolition, repairing, altering, painting, or cleaning of a building are required to furnish scaffolding, hoists, stays, ladders, and other devices to all persons performing such work. Marsh 3

4 NOVEMBER 2012 Underwriting Approach In assessing insurance applications in New York, underwriters are looking for 7-10 years of New York loss experience and are paying particular attention to: New York labor law losses, losses from OCIP/CCIP work, and past aggregate erosion. Underwriters are examining the insured s knowledge of contractual liability and paying attention to contractors that are more exposed to third-party-over action claims, critically examining exposures to employees and likelihood of injuries, and assessing hold harmless, waiver of subrogation and additional insured requirements. Underwriters are analyzing the local economy and trying to better determine the contractor s or owner s current and historical layoff procedures. In addition, underwriters are looking at turnover rate of employee contractors, training and quality concerns, subcontractors and their training. Underwriters are addressing location of projects and job site protection: how much work is performed from heights, exposures insured contractors present for others at the job site. Underwriters are analyzing the risk s safety program(s), safety training, safety equipment, use of scaffolding, open holes/excavation, debris/trash removal, equipment movement, falling or dropped materials. In addition, contractors use scaffolding, lifts, ladders, hoists, sandblasting, building cleaning, exterior painting, mechanical contractors, window installers. Addressing Scaffold Law Claims Some of the largest verdicts in New York in 2012 resulted from construction litigation involving New York labor law. The verdicts included one for nearly $20 million, one for $16.5 million, one for $13 million, and two for $11 million, according to public sources. Timely and thorough handling and investigation is critical to defending a potential New York labor law claim. There is a direct corollary between timely claim reporting and reduced indemnity payments in general, and especially so with respect to New York labor law claims. The recommended steps include, but are not limited to: Creating claims-administrator specific instructions that require that the contractor or owner is notified of an incident that could become a Scaffold Law claim. Directing the claims administrator to perform an on-site investigation including photographing the area in which the claim occurred and securing statements from witnesses (including supervisors, other employees, and third-party witnesses) in a timely fashion. Note that negative statements, such as when a witness indicates they have no firsthand knowledge of the incident, can be valuable to dissuade a different story being told in the future. Ensure that you get the current home address and phone numbers of witnesses many times they can disappear several years after the incident. Securing evidence that may be critical to the investigation including scaffolds, ladders, and other equipment. Considering whether to engage defense counsel immediately to assist in the development of an investigation plan and to help keep the investigative results protected through attorney-client privilege. 4 New York Labor Law 240

5 Requiring specific claim descriptions be used by the claims administrators in their online claims systems so potential claims can be identified. Requiring that periodic claims reviews include any claim that has a potential to become a New York labor law claim, regardless of the reserve that has been established. Fall/Loss Protection Accident prevention is the key to controlling loss exposures and the significant costs of legal actions under New York Labor Law 240. Three primary loss control measures can help to protect owners, contractors, and, ultimately workers from the risks attached to fall-related injuries. 1. Hire safe contractors: Check safety records. Only hire contractors with workers compensation experience mod numbers under 1.0. Only hire contractors with OSHA recordable accident rates that are below the industry average. Check OSHA citation history. Review contractor qualifications. Check references. Check for a well-established safety program. Inquire about safety training. Check fall protection rules. 2. Mandate safe work sites: Require a site-specific safety plan. Require regular safety meetings. Require safety training that includes fall-protection training. Consider requiring fall protection for all workers (including steel erectors and iron workers) beginning at six feet. Require documented daily inspections of all scaffolding, ladders, floor openings, and wall openings. Strictly enforce fall protection rules violators will be dismissed from the site. Include contractual language allowing the owner to stop work, fine unsafe contractors, and/or terminate the contract for poor safety performance. 3. Negotiate risk transfers: Make sure legal counsel reviews all contracts. Specify insurance requirements including workers compensation and general liability coverages and policy limits. Ensure that you and the owner are named as an additional insured on the contractor s insurance policies. Obtain copies of the insurance certificates. Consider using hold harmless agreements to transfer risks to another party. By understanding the Scaffold Law, owners and contractors can better understand how to protect their workers and mitigate the risk of falls and injuries in the workplace. When it comes to the Scaffold Law, even if an injured employee is negligent the liability likely will fall to the contractor or owner a fact that has caused insurers to underwrite tight guidelines and increase deductibles. It is essential for contractors and owners to follow sound safety management and claims handling procedures regarding this law. Management must allocate the necessary resources to develop safety protection programs, understand the hazards that workers face in the field, and provide them with the proper guidance and resources. Following safety procedures, mandating safe worksites, and hiring the right safety contractor will allow workers, contractors, and owners to avoid high rates of injury and risk in the workplace. Marsh 5

6 For further information, please contact your local Marsh office or visit our website at marsh.com Daniel E. Aronson Managing Director, Casualty Practice (212) Michael L. Smithers Managing Director, NY Metro Construction Practice Leader (212) Fred Heath Senior Vice President, Construction Placement (212) Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman. This document and any recommendations, analysis, or advice provided by Marsh (collectively, the Marsh Analysis ) are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. This document contains proprietary, confidential information of Marsh and may not be shared with any third party, including other insurance producers, without Marsh s prior written consent. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modeling, analytics, or projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Except as may be set forth in an agreement between you and Marsh, Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party with regard to the Marsh Analysis or to any services provided by a third party to you or Marsh. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage. Copyright 2012 Marsh Inc. All rights reserved. Compliance MA