The Action Over Exclusion: How NYC Contractors Get Caught Under Labor Law 240

What Is an Action Over Claim?

Workers' compensation is the exclusive remedy for an injured worker against their employer in New York. An employee who is hurt on a job site cannot sue their employer directly for negligence. However, they can sue third parties, including the property owner and the general contractor, for their role in causing the injury.

An action over claim arises when the injured worker sues the owner or GC, and the owner or GC then seeks indemnification from the subcontractor whose employee was injured. The subcontractor is brought into the litigation not as a direct defendant in the worker's suit, but as an indemnitor under the subcontract. The subcontractor's general liability policy is the coverage that is supposed to respond to this indemnification obligation.

New York Labor Law Section 240 and Absolute Liability

New York Labor Law Section 240, commonly called the Scaffold Law, imposes absolute liability on owners and general contractors for gravity-related injuries on construction sites. Absolute liability means that the owner or GC is liable regardless of the injured worker's own negligence. Comparative fault does not apply. If a worker falls from a scaffold, ladder, or elevated surface, and the fall is caused by an inadequate safety device, the owner and GC are liable.

This absolute liability standard makes New York one of the most plaintiff-favorable jurisdictions in the country for construction injury claims. The severity of Labor Law 240 verdicts is a primary driver of the high cost of construction insurance in New York City. When an owner or GC is hit with a Labor Law 240 judgment, they look immediately to the subcontract indemnity clause to recover from the subcontractor whose employee was injured.

The Action Over Exclusion and How It Operates

Many general liability policies contain an action over exclusion, sometimes called an employee injury exclusion or a workers' compensation action over exclusion. In its broadest form, this exclusion bars coverage for any claim by a third party seeking indemnification for bodily injury to the named insured's employee. The exclusion is designed to prevent the GL policy from being used to fund what is essentially a workers' compensation claim through the back door.

The problem for subcontractors is that the exclusion can apply to exactly the scenario they most need coverage for: an owner or GC seeking indemnification after a Labor Law 240 judgment. If the exclusion applies, the subcontractor's GL carrier denies the indemnification claim, and the subcontractor pays the judgment from its own funds. In a Labor Law 240 case, that judgment can be in the millions.

New York Workers' Compensation Law Section 11

Workers' compensation is the exclusive remedy of an injured worker against the employer, so the worker cannot sue the employer directly at all. Section 11 addresses a different question: when an owner or general contractor that has been sued can bring the employer into the case. Under Section 11, an owner or GC can seek contribution or indemnification from the employer only if the worker suffered a grave injury as defined in the statute (such as death, permanent and total loss of use of an arm, leg, hand, or foot, or a permanent and total disability), or if the employer expressly agreed to contribution or indemnification in a written contract entered into before the accident. That written contract exception is why the indemnity clause in a subcontract matters so much: it is what allows the owner or GC to pursue the subcontractor even when the injury is not a grave injury.

Contractual Indemnity and Additional Insured Obligations

Subcontracts on New York construction projects routinely include broad indemnity clauses requiring the subcontractor to indemnify the owner and GC for claims arising out of the subcontractor's work. These clauses are the mechanism through which action over claims are brought. The subcontractor's GL policy is supposed to cover this indemnity obligation, but the action over exclusion can bar coverage.

Additional insured requirements compound the issue. Owners and GCs require subcontractors to name them as additional insureds on the subcontractor's GL policy. An additional insured endorsement that is subject to the action over exclusion may not provide the coverage the owner or GC expects. Review both the additional insured endorsement and the action over exclusion language together, not separately.

Coverage Comparison: With and Without Action Over Exclusion

The table below illustrates how the presence or absence of an action over exclusion affects coverage in a typical Labor Law 240 scenario. Coverage depends on the specific policy wording and endorsements.

What to Check Before Signing a Subcontract

Before signing any subcontract that includes an indemnity clause, a subcontractor should have their GL policy reviewed for action over exclusion language. The review should confirm whether the exclusion exists, how broadly it is worded, and whether any endorsements modify or remove it. Some carriers offer endorsements that delete or narrow the action over exclusion for an additional premium.

The review should also confirm that the additional insured endorsements required by the subcontract are consistent with the indemnity obligations being assumed. A mismatch between what the subcontract requires and what the policy actually provides is a common source of uninsured exposure. Work with a broker who understands New York Labor Law and can identify these gaps before a claim occurs.