Action over insurance coverage is essential for contractors and subcontractors, especially those doing business in New York. But many construction companies and trades don’t know what action over coverage is – or that their insurance policy lacks it – until it’s too late.
What is an action over claim?
An action over claim, also called a third-party action over claim, may be triggered when an employee of a contractor or subcontractor gets injured on the job and sues a related third party, such as the building owner or general contractor, for failing to provide a safe work environment.
Say an electrician employed by an electrical subcontractor breaks his leg after falling from a ladder while installing wiring at a building site. In almost all cases, the electrician cannot sue his employer directly if he receives benefits under the employer’s worker’s compensation policy. However, the worker is free to sue the building owner or general contractor (GC), and when he does, it causes a chain of events that could make the electrical subcontractor liable. If the electrical subcontractor has an exclusion on their policy for injury to employees, and there is no coverage for liability assumed under a contract, then the subcontractor is exposed to liability for the claim without any insurance coverage.
What is action over coverage?
Typically, building owners will require in their contract with a GC an indemnification clause that states the GC will hold them harmless should an employee of the GC or its subcontractors become injured on the job. The GC will in turn insist on an indemnification clause with its subcontractors. Therefore, when the building owner gets sued, it will look to the GC for indemnification, and when the GC gets sued, it will look to the subcontractor to be indemnified. When this happens, some GCs and subcontractors learn the hard way that there is an exclusion in their policy, which means the insurance company will not cover the claim. Unfortunately, a single labor claim is enough to put some GCs and subcontractors, many of which are small companies, out of business. “Labor Law claims in New York generally start around $100,000 and, depending on severity of injury, job description and age of the claimant, can go into the millions,” says Katie Blackburn, senior vice president who manages claims for World Insurance Associates LLC, a large regional insurance broker.
Why do insurance companies put action over exclusions in place?
For liability insurance companies selling policies in New York, the reason for this exclusion stems from Sections 240 and 241 of the New York Labor Law, otherwise known as the Scaffold Law. This law holds property owners and general contractors fully and strictly liable for gravity-related injuries even in cases where the worker’s negligence contributes to the accident.
Despite the nickname, these cases are not limited to someone falling from a scaffold. They can include any incident where height contributes to an injury, such as a hammer falling from a ledge and beaning someone on the head. “For contractors doing business in the New York area, labor law claims are unfortunately common.” Blackburn explains. “It’s particularly common in New York City, a dense area with a lot of construction, with many contractors and subcontractors on the same job site, and where there’s more opportunity for gravity-related injuries.” The Scaffold Law has made insurance much more expensive in New York and, besides action over exclusions, it has prompted many insurance companies to put New York City five borough exclusions in contracts, and for some insurance companies to withdraw from the New York market all together.
Do most contractors have action over insurance?
All of the major construction companies that do business in New York likely have action over insurance, Blackburn says. “From a logistics point of view, most buildings won’t let a contractor in if they don’t have the right insurance.”
However, many subcontractors lack action over coverage, either because it’s too expensive or because they don’t realize they don’t have it.
Part of the problem is with the language.
“It’s called a lot of different things by insurance companies, which leads to confusion,” Blackburn explains. “As part of the quoting process, we advise contractors about the pertinent exclusions, and we advise them to thoroughly review their policy and to have a lawyer who is familiar with New York labor laws to also review the policy and their indemnification agreements.”
Some insurance companies will also put an endorsement in their policy stating that contractors will only be covered if they do business with subcontractors that have the right insurance. “Everyone is trying to transfer risk back down to the employer of the injured worker,” Blackburn says. “But indemnification doesn’t work if the subcontractor doesn’t have adequate insurance containing proper limits and inclusions.”
How we can help
If your company is having a problem with a construction-related insurance recovery claim, we can help. Contact us today for a free consultation.
For more information about World Insurance Associates, visit https://www.worldins.net/ or contact Katie Blackburn at (732) 380-0900, ext. 510 or firstname.lastname@example.org.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack