As members of the defense bar, we routinely ask "Where is the justice?" With plaintiff-oriented venues and post COVID nuclear verdicts, the defense is often faced with defending actions on damages at trial where summary judgment is routinely granted on elevation related accidents under New York Labor Law. Builders, risk managers and insurance companies in the State of New York are all too familiar with the infamous Labor Law statutory scheme, which for years proved a harbinger for lawsuits alleging strict liability for alleged accidents on construction sites. Due to the strict liability standard, contractors are prime targets for personal injury litigation and often at the mercy of plaintiffs encouraged to inflate the extent of their injury and damages.
Construction insurance costs in New York have soared to staggering levels. Some insurance carriers have exited the market, retention points have risen, and other adverse effects have manifested. Despite previous attempts through investigative journalism, even with the aid of sub-rosa video surveillance, efforts to spotlight suspected fraud have struggled to gain significant traction.
However, the light is now brightly shining on the rampant fraud in New York thanks to two developments. The first is a shocking series spearheaded by ABC New York which provides graphic video footage of the fraud and provides context for its impact on consumers. The second is an explosive RICO lawsuit which calls out the names of individuals and firms involved in carrying out this nefarious scheme. Taken together, the proverbial tide favoring the defense has turned culminating in a potential legislative change.
The Current State of New York Labor Law
A great deal of the problem stems from the continued use of the outdated labor law first passed in 1885. Under New York Labor Law Sections 240 and 241, a property owner and general contractor are strictly liable if a worker falls from any height and sustains an injury. As currently written, the law imposes strict liability on the owner of the property and the general contractor with no portion of the fault being assessed against the party allegedly injured even if the injured party is partially responsible for the accident. In practice this means that even if a worker is 99% at fault for the alleged accident and resulting injury, the owner and the general contractor will still be strictly liable for the incident.
Many critics of the New York Labor Law have long argued that a negligence standard would promote increased fairness and still serve to protect workers on construction sites. Remarkably, New York stands alone in the nation in upholding this antiquated law. Illinois once had a similar provision but significantly amended it, leading to a substantial decrease in accidents in subsequent years. Although the original law was enacted to protect workers, it did not anticipate the law being applied to shield the injured worker from any accountability for the incident. The law would permit a worker from recovering fully against the owner and the general contractor even in situations where it can be demonstrated that the worker's actions contributed to or caused the incident. While there are some exceptions when the worker is the sole proximate cause of the accident, it is very difficult to have a case dismissed under the New York Labor Law when the plaintiff's actions are the sole proximate cause of the incident.
The Impact on the Insurance Industry
The proliferation of fraudulent claims and claims where the plaintiff caused the incident in recent years has led to a substantial spike in insurance premiums for numerous construction firms in New York. Those on the ground are witnessing significant shifts in the industry landscape as the situation continues to worsen and the claims continue to increase. Each false claim or claim caused directly by the worker's actions is detrimental, even if the defense successfully disproves the claim during the litigation. The cost of investigation, time, and attorney fees as well as scarred loss runs for contractors seeking renewals for the following year continue to increase costs to owners and contractors. Even when claims are defended, the excessive cost in properly defending the cases results in increase costs and expenses for all parties involved.
In an attempt to combat litigation abuses, a recent lawsuit involving RICO allegations, was filed by Roosevelt Road Re and Tradesman Program Managers (case # 1:2024-cv-01549) against forty-six individuals and businesses that they claim pursued fraudulent claims in a "systematic exploitation of the New York State Workers' Compensation system." The complaint states that false or exaggerated injury and medical treatment were "ultimately designed to result in windfall tort claims alleging violations of sections 240 and 241 of New York's Labor Law." The suit went on to recount how these fraudulent lawsuits comprise an "overarching enterprise scheme." The Racketeer Influenced and Corrupt organizations Act (RICO) claim came into being after a comprehensive investigation was completed and allegedly found that a group of attorneys, medical providers and others were working together in the furtherance of the fraudulent scheme.
Specifically, the lawsuit alleges that the enterprise scheme targets foreign-born workers who lack proficiency in English and encourages them to file claims for fake or inflated accidents knowing that the claims lack merit. In addition, most of the claims do not have witnesses to the accident and are filed late in time after the alleged occurrence. In practice, this scheme results in a basic trip and fall incident that normally may cause a bruised knee or similar injury becoming elevated on paper to a multi-million-dollar permanent disability workers' compensation claim. Notably, the lawsuit includes video footage of some the alleged "falls" that have led to claims being filed as evidence of fraud.
It is also notable that in recent trials, some physicians being sued in RICO actions have refused to testify. RICO opens the door to asserting a fraud defense in the pending lawsuit and will hopefully have a chilling effect on the present docket of cases involving the same providers from further prosecuting the actions or from bringing fraudulent actions.
"We have reached a breaking point which culminated with the investigative journalism of WABC-TV7 Eyewitness News in New York," said Jim Tyrie, co-managing partner of the New York office of Wood, Smith, Henning and Berman. "We see this play out in our regular practice of defending Labor Law claims and have been successful getting to the bottom of claims involving fake falls on construction sites. However, this coverage was a turning point for the public and lawmakers."
Underscoring the intensity of this cottage industry was footage featured on the news showing participants in the scheme looking up permits and jobsites and proceeding to file claims based on that research. As part of the report, multiple construction companies reported false claims of workers who said they suffered worksite injuries. Unbelievably, the owners indicated that the workers in question were not even on the jobsite where the alleged incident took place.
"This issue has reached a crescendo due to a confluence of facts," said Tracy Abatemarco, co-managing partner of WSHB's New York office. "Media coverage has been huge, but there is also a big push from the contractor community and brokers who have become increasingly vocal about the rampant fraudulent claims which have increased over the past few years. What used to be one claim every few years has turned into several claims in one year, raising eyebrows, premiums, and suspicion."
The Empire State Chapter of the Associated Builders and Contractors performed an analysis in 2010, which revealed that about 4% of the cost of a $100 million project in New York would go toward workers' compensation, general liability, and excess insurance. In 2020, that cost was approximately 8.5% of that $100,000 project and by 2023-2024 it had jumped again to close to 12.5%. Expectations are that the costs will rise to 13- 14% by 2025. Comparatively, according to the association's report, firms pay rates of approximately 2.5% in the neighboring states of New Jersey, Connecticut and Pennsylvania. These increased costs for litigation continue to increase the overall cost of doing business in New York State and are merely passed on to the general public. In fact, the costs for governmental entities in New York are also seeing increases in costs for any type of construction being conducted due to these suits and the antiquated New York State Labor Law.
"Consumers need to recognize compensation for these rising insurance costs are ultimately passed on to the building owners, homeowners and renters. These rising insurance costs have to be accounted for somewhere," Abatemarco said.
The State Legislature Takes Notice
In a glimmer of hope that relief is on the way, concerns surrounding the fraudulent claims have reached the state legislature. Bill 8413 was recently re-introduced and specifically prohibits staging a construction site accident for the purpose of committing insurance fraud. The bill proposes adding a section to the penal law establishing the crime of staging a construction suite accident. If passed, violators will be charged with a felony.
If passed the crime of staging a construction site will occur when:
- "A person enters a construction site with intent to commit and in furtherance of a fraudulent insurance act, and
- Intentionally stages an accident on such site with intent to file an insurance claim, or
- Directs, hires, requests, encourages, orchestrates or invites another individual to enter a construction site and intentionally stage an accident with the intent to file an insurance claim." (8413-A)
Discussions focused on fraudulent insurance claims have been a point of contention for nearly two decades at the state level. Interest in changing the law gained momentum following the passage of Alice's law in 2019, which created criminal penalties for people who stage car accidents in order to commit insurance fraud.
"We talk about how expensive housing is in the State of New York, and this is one of the reasons," said Tyrie. "Fraud hurts everyone, and tort reform in the State of New York is sorely overdue starting with the arcane Labor Law statute."
Conclusion
The rampant fraud and outdated New York State Labor Law plaguing New York's construction industry have reached a critical juncture that demands immediate action. The collaborative efforts of investigative journalism, legal practitioners, industry stakeholders, and lawmakers have shed light on the detrimental impact of fraudulent claims on insurance costs, project expenses, and ultimately, consumers. As legislative initiatives gain momentum, there is hope for meaningful reform that will not only deter fraudulent activity, but also promote a fair and sustainable construction industry in New York. Addressing these challenges head-on is paramount to ensuring the continued growth and integrity of New York's construction sector while safeguarding the interests of all stakeholders and workers alike.