What Every New York Contractor Needs to Know About Labor Law §240 and §241 Before a Claim Happens
If you are a contractor working in New York, there is one area of liability insurance you cannot afford to overlook: New York Labor Law.
Many contractors assume that if they have a $1 million or $2 million General Liability policy—and perhaps an additional $5 million, $10 million or $15 million Excess Liability policy—they are fully protected against construction accident claims.
That assumption can be dangerous.
New York has some of the most challenging construction liability laws in the country. In particular, Labor Law §240, commonly known as the “Scaffold Law,” and Labor Law §241 can create significant liability exposures for contractors and property owners. New York Labor Law §240 addresses protections for workers engaged in activities including erection, demolition, repairing, altering, painting, cleaning and pointing of buildings and structures.
The important question isn’t simply:
“Do I have General Liability insurance?”
The better question is:
“Does my General Liability policy actually provide coverage for the exposures I face under New York Labor Law?”
What Is New York Labor Law §240?
Labor Law §240 is commonly referred to as the Scaffold Law.
The statute requires contractors and owners involved in covered construction activities to provide certain safety devices—including scaffolding, hoists, ladders and other equipment—to protect workers from elevation-related hazards.
This is particularly important when a construction worker is injured in a fall or is struck by a falling object.
For a contractor, the potential financial consequences can be substantial.
A serious construction accident can involve:
- Significant medical expenses
- Workers’ compensation benefits
- Lost wages
- Permanent injuries
- Third-party lawsuits
- Defense costs
- Indemnification claims
- Additional insured disputes
- Excess and umbrella liability exposure
And because New York Labor Law is different from ordinary negligence law, contractors need to pay particularly close attention to how their insurance program responds.
Why Labor Law §241 Matters
Labor Law §241 deals with construction, excavation and demolition work and establishes safety requirements that contractors and owners must follow. The statute specifically applies to contractors and owners involved in covered construction activities, subject to statutory exceptions.
This means that contractors need to think beyond basic premises liability or ordinary job-site accidents.
A contractor may believe:
“My employee was injured, so Workers’ Compensation will handle it.”
But a construction accident can potentially result in both a workers’ compensation claim and a third-party liability action, depending on the circumstances.
That is where the contractor’s General Liability and Excess Liability insurance can become extremely important.
The Problem With Assuming Your Policy Covers Everything
One of the biggest mistakes a contractor can make is looking only at the declarations page.
A declarations page might show:
General Liability: $1,000,000 / $2,000,000
and:
Excess Liability: $5,000,000
At first glance, that may appear to provide substantial protection.
But insurance coverage isn’t determined solely by the limits shown on the declarations page.
The exclusions and endorsements contained in the policy can be just as important as the limits.
For example, contractors should carefully review whether their liability policies contain exclusions or limitations that could affect claims involving:
- New York Labor Law §240
- New York Labor Law §241
- Action-over claims
- Injury to employees of subcontractors
- Contractual liability
- Additional insured obligations
- Construction defects
- Prior work
- Wrap-up or OCIP/CCIP projects
- Height-related operations
- Specific trades or operations
New York’s insurance market has also seen surplus-lines policies and specialty programs with highly specific exclusions and endorsements. New York’s Department of Financial Services has recognized that excess-line liability policies can contain endorsements excluding certain claims involving subcontractor employees, including in the context of Labor Law §240 claims.
That is why reading the policy matters.
The “Action-Over” Exposure
Another area contractors should understand is the action-over claim.
Here’s a simplified example:
A subcontractor’s employee is injured while working on your job site. The employee receives workers’ compensation benefits from his employer. But a lawsuit may also involve the general contractor, property owner or another party.
The contractor may then face an attempt to transfer responsibility through contractual indemnification or another legal theory.
This is one reason contractors should not evaluate their insurance program by looking at General Liability in isolation.
Your insurance program needs to work together:
Workers’ Compensation + General Liability + Excess/Umbrella + Contractual Risk Transfer
Each piece has a different purpose.
Don’t Let a Certificate of Insurance Give You False Confidence
Another common misconception is:
“My subcontractor gave me a Certificate of Insurance, so I’m protected.”
Not necessarily.
A certificate is evidence that insurance was represented as being in place. It does not, by itself, tell you everything you need to know about the actual policy terms.
For New York contractors, it can be important to review the underlying policy and endorsements to determine whether the subcontractor’s insurance satisfies your contractual requirements.
Depending on the project, those requirements may include:
- Additional Insured status
- Primary & Non-Contributory wording
- Waiver of Subrogation
- Contractual Liability
- Appropriate liability limits
- No Labor Law exclusion
- No problematic action-over exclusion
- Appropriate Excess Liability coverage
This becomes particularly important when you are a subcontractor working for a general contractor or owner who has strict insurance requirements.
Your Contract and Your Insurance Policy Need to Match
Here’s another important lesson:
Don’t wait until after you sign the contract to discover that your insurance doesn’t satisfy the insurance requirements.
A general contractor may require $2 million in General Liability and $10 million in Excess Liability.
That doesn’t necessarily mean that simply purchasing those limits solves the problem.
The contract may also require specific wording and coverage provisions.
For example, a project may require the contractor’s policy to provide coverage without a Labor Law exclusion or require particular Additional Insured coverage.
If your current insurance program doesn’t satisfy those requirements, you could have a problem before you even begin the project.
That’s why contractors should have their insurance broker review significant contract insurance requirements before signing the contract whenever possible.
What Should a New York Contractor Do?
If you’re a New York contractor, here are five questions worth asking your insurance broker:
1. Does my General Liability policy contain a Labor Law exclusion?
2. Does my Excess Liability policy follow the underlying coverage, or does it contain additional exclusions?
3. Do I have an action-over exclusion that could affect claims involving employees of subcontractors?
4. Do my policies satisfy the insurance requirements in the contracts I am signing?
5. If a serious construction accident occurs tomorrow, what exactly will my insurance company defend and cover?
If you can’t answer these questions, it’s worth having your insurance program reviewed.
Don’t Buy Liability Insurance Based Solely on Price
New York contractors are under tremendous pressure to control costs.
Insurance premiums are expensive. Construction margins can be tight. Contractors naturally want to find the best price.
But liability insurance is one area where the cheapest policy isn’t necessarily the best policy.
Saving several thousand dollars on premium doesn’t mean much if a serious claim exposes your company to hundreds of thousands or millions of dollars because of an exclusion you didn’t know existed.
The goal should not simply be to find the cheapest insurance.
The goal should be to find the right insurance for the work you actually perform.
That means understanding your operations, contracts, subcontractors, project locations, payroll, sales, classifications, loss history and—most importantly—the actual policy language.
How BGES Group Can Help
BGES Group is a boutique insurance agency specializing in New York, New Jersey and Connecticut construction insurance and workers’ compensation.
We understand that contractors don’t simply need an insurance certificate. They need an insurance program that is designed around the realities of their business.
We can help New York contractors review their General Liability and Excess Liability programs for important coverage issues, including Labor Law exposures, subcontractor requirements, Additional Insured provisions, contractual liability, action-over concerns and other policy exclusions that could create problems when a serious claim occurs.
We also help contractors navigate a difficult construction insurance marketplace and work with multiple insurance carriers to find coverage appropriate for their particular operations.
At BGES Group, we believe contractors deserve more than a policy quote. They deserve an insurance professional who understands construction.
If you are a New York contractor, GC, subcontractor, developer or construction professional, contact us before your next policy renewal—or before signing your next major contract.
BGES Group
Gary Wallach Construction Insurance Specialist
Phone: 914-806-5853 Email: bgesgroup@gmail.com Website: www.bgesgroup.com
Don’t wait until a construction accident happens to find out what your liability policy doesn’t cover.
Insurance coverage is subject to the actual terms, conditions, exclusions and endorsements of the applicable policy. This article is for general informational purposes and is not legal advice or a determination of coverage.