Contractor Liability Avoiding Pitfalls with Contractors' Insurance

There has been much discussion recently about the antiquated New York Labor Law 241 and its effect on the availability and cost of insurance coverages for contractors. The fear is that smaller contractors will get priced out of purchasing the proper insurance coverages and only legislative reform could bring change. Reform has been proposed several times, and in June it was again shut down in the State Assembly. The financial and political reasons as to why this happened are beyond the scope of this article. The negative effects of this law, however, are compounding and are having real and serious consequences on the New York real estate industry costs and business practices.

Who’s Liable?

New York State Labor Law Sections 240, 241 and 241A impose liability on property owners and their contractors for injuries to contractor employees resulting from falls, falling objects, or for the failure by responsible parties to control hazards. Normally, if employees are injured on the job, their sole remedy against their employer is to file a claim for Workers Compensation benefits. Workers Compensation is a no-fault system that provides medical benefits as well as lost wages for injuries that occur on the job without having to bring action against the employer. However, under labor law, injured workers can also seek to receive additional compensation from the property owner by claiming that the owner failed to provide a safe work environment.

The commonly accepted approach to deal with labor law in construction projects has been contractually transferring risk from the property owner to contractors (and their subcontractors). This is accomplished by requiring contractors to sign hold harmless agreements and agree to have the contractor’s liability carrier provide defense and indemnity to the property owner should a suit be brought against them. This has worked as long as the contractors’ insurance carriers were willing to take on this risk.

Fewer Carriers


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