Exposing the Labor Law Epidemic

Rampant fraud and outdated statutes plague New York's construction industry

April 16, 2024 Photo

As members of the defense bar, we routinely ask, "Where is the justice?" With plaintiff-oriented venues and post-COVID-19 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 that 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A great deal of the problem stems from the continued use of the outdated Labor Law first passed in 1885.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 attorneys' 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.

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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 46 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.

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.

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.

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.

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.

About The Authors
Multiple Contributors
Tracy J. Abatemarco

Tracy J. Abatemarco is a co-managing partner at Wood Smith Henning & Berman.tabatemarco@wshblaw.com

James P. Tyrie

James P. Tyrie is Co-Managing Partner at Wood Smith Henning & Berman LLP.  jtyrie@wshblaw.com

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CLM’s Insurance Fraud Committee identifies, analyzes, and offers education on emerging fraud schemes and tactics; monitors and reports on developments in case law, state fraud statutes and applicable regulations; collaborates with other anti-fraud industry organizations and associations; and seeks to provide amicus support in matters of importance in the fight against insurance fraud.

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