Legal Tentacles of the Labor Law

Q

I serve on the board of my condominium and plan to renovate my unit. I am concerned that an injured construction worker may bring a lawsuit under New York’s so-called Labor Law. I understand that it is difficult to defend against such a suit. What is the Labor Law, and what should the board and I do?

A

Portions of the Labor Law were enacted to protect workers injured on construction projects. They allow an injured worker to sue the owner and general contractor even if they did not cause the accident. (One part of it is Labor Law 240; see box, p. 42.)

This statute has a long history. It dates back to the early 1900s. At that time, construction workers often faced perilous working conditions and sustained serious debilitating injuries. They had no means of obtaining compensation since the parties at fault were often undercapitalized and uninsured. In order to make them accountable, the Labor Law placed the responsibility on owners and general contractors. It was believed that they were in the best position to provide a safe workplace.

The statute does not apply to the owners of one- and two-family houses or to individual co-op shareholders or condo unit-owners. But corporations and the boards that represent them are potentially liable, and unless they have insurance, they will incur legal fees after hiring a lawyer to defend the case. These fees are not recoverable, even if the case is dismissed.

Condos: Not Liable (For Now)

In its recent decision in Guryev v. Tomchinsky, New York State’s highest court barred all claims by a worker injured during construction in an apartment at a condominium. This decision is good news for condominium unit-owners, boards, and managing agents. However, it may be undermined in the future. For this reason, the better practice mandates careful planning before an accident occurs.

In Guryev, the court considered a claim by a construction worker who suffered a serious eye injury while working at a unit-owner’s apartment in a new condominium. The suit was filed against the couple that owned the apartment, the condominium, its board, and the managing agent. Claims were asserted under various theories, including a provision of the Labor Law.

The court threw out the case. The claims against the individual unit-owners were barred for the reason discussed above (i.e., the exemption for one- and two-family homes).

The court then focused on the role of the board and the managing agent in order to determine whether they could face liability as an “owner” under the terms of the statute. It found that none of the entities had sufficient involvement in the work to be liable. In doing so, the court looked at the alteration agreement. Even though the agreement entitled the board to (1) authorize or reject the plan, (2) approve or veto the proposed contractors, and (3) subject the plan to review by an architect of its choosing, the court concluded that the board lacked sufficient authority to direct and control the construction work in order to impose liability under the statute.

Although the Guryev decision is favorable for condominiums, it should be viewed with caution. Its net effect is to deprive an injured construction worker of any remedy (other than the limited funds available under the Workers Compensation Law). For this reason, it would not be surprising to see future efforts to undermine this decision, including legislative steps to address the matter.

Co-ops: Different Strokes

A different rule applies to cooperatives. The provisions of the Labor Law are enforceable. As such, a cooperative (but not the shareholder) may face liability for a claim under the Labor Law. Accordingly, all construction projects at condos and co-ops should anticipate a personal ijury lawsuit and devise a plan. Proper planning involves adequate insurance coverage and indemnity agreements. These obligations should be set forth in the contracts entered into with the contractors, and in the alteration agreement.

First, you should make sure that your homeowners’ policy and the building’s commercial general liability policy provide coverage for losses that occur while construction is under way. Speak with your broker.

Second, the construction contracts should provide that the general contractor and subcontractors will indemnify, to the fullest extent permitted by law, the unit-owner, board, building, and managing agent for all losses. At the same time, the contracts must require the contractors to secure general liability insurance for their company, as well as the unit-owner, board, building, and managing agent. A primary policy with a $1 million limit, and an excess policy with a $5 million limit, are recommended. Here, it should be kept in mind that it is the severity of the injury, not the size of the job, that will determine the amount of insurance coverage necessary to afford adequate protection.

If the contracts do not require the procurement of insurance, the indemnity agreement may not be enforceable. Thus, the insurance procurement provision should not be omitted under any circumstances.

The actual insurance policies should be produced before the work begins. Often, contractors will provide certificates of insurance. However, these are not proof of coverage in New York City and its surrounding counties. Thus, if a broker incorrectly issues a certificate of insurance, but the insurance policy is not issued, the insurance company would not be obligated to provide coverage.

Third, the alteration agreement should provide protection to the co-op or condo. It should obligate the resident to indemnify the building, board, and managing agent for all losses, to the fullest extent permitted by law. It should also require the resident to name the building and board on the resident’s insurance policy. Here too, the failure to include the obligation to secure insurance may invalidate the indemnity clause.

Plan for the Worst

In summary, claims under the Labor Law against co-op and condo residents and condo boards should be dismissed. Those against co-ops will be viable. The current distinction between co-ops and condos may be fleeting, and the better practice would be to plan in advance. To do so, the owner, the co-op, and the condo should each carry their own insurance policies.

Written agreements with contractors should require indemnification and set forth insurance procurement provisions running in favor of the shareholder, the building, and its board and managing agent. All policies should be produced before work begins. The alteration agreement should have similar terms to protect the co-op and condo.

If these steps are taken, unit-owners, condominiums, cooperatives, and their boards will be protected, regardless of the ebb and flow of the decisions issued by the courts and the legislation passed in Albany.

==HABITAT SIDEBAR==

Labor Law 240

“The Scaffold Law”

Most people know about Labor Law 240 in the context of renovations on buildings. This is the law that makes owners, contractors, and their agents liable for injuries to workers who fall from a height. It is also known as the “Scaffold Law.” However, falling from a height can include a wide range of causes. It can include when a worker stands on a box to install a light fixture and falls. Most shareholders would be surprised to learn that it can also apply in some instances to renovations in their apartments.

The statute applies to “all contractors and owners and their agents, except owners of one- and two-family dwellings who contract for but do not direct or control the work....” The exception for owners of one- and two-family dwellings is known as the “Homeowner Exemption.” The term “one-family dwellings” has been interpreted by the courts to include co-op apartments. The catch is that these owners cannot “direct or control the work.” What that means is open to interpretation.

Shareholders who like to give a lot of orders and are very involved in the day-to-day details of the work in their apartment renovations will find it harder to be let out of such cases, since the plaintiff will be claiming that they directed and controlled the work. Shareholders who have more traditional roles where they have architects communicating with the contractor and just comment on aesthetic issues will have an easier time when the attorneys file motions to be dismissed from the lawsuit.

Language in the contracts between shareholders and their contractors can be helpful in establishing this, so consult an attorney.

The co-op can also be sued under this law as an owner. However, the same reasoning has not been applied to condominium buildings for injuries to workers in an individual unit, even when they retain the right to review plans.

– C. Jaye Berger