A typical scenario in New York construction litigation is this: A sub’s employee sues the Owner and General Contractor under Labor Law §240. The response? A third party action against the plaintiff’s employer.  But here’s the usual rub, the GL carrier disclaims coverage, citing the “any employee” exclusion and whatever else may apply.

Plaintiff claims a “grave injury” and the defense then falls to the 1B carrier who assigns defense counsel. Not it gets worse, defense counsel advises the 1B carrier that ethical constraints prevent defense counsel from challenging the “grave injury” claim because to do so would put its client in jeopardy of losing the only coverage it has.

But a recent First Department decision affords worker’s compensation carriers some relief from the “grave injury” conundrum. In National Union Fire Ins. Co. of Pittsburgh Pa v. 221-223 West 82 Owners Corp., the First Department granted the worker’s compensation insurer’s motion for summary judgment in its collateral declaratory judgment action against its insured on the basis that plaintiff in the underlying action did not suffer a grave injury.

The First Department held that the insurer was entitled to rely on underlying plaintiff’s bill of particulars to prove that the ligament and meniscal tears claims would never qualify as a “grave injury.” As such, National Union was not obligated to defend or indemnify its insured for the common-law indemnification claims.  In addition, the First Department also held that the insured would not be prejudiced if National Union withdrew its defense because it had expressly reserved its rights to do so and the insured failed to demonstrate any prejudice.

This is excellent news for worker’s compensation carriers. While it will cost more money to prosecute collateral declaratory judgment action, this new case law gives WC carriers relief from defense and indemnity obligations where there is no grave injury.

Thanks to Alison Weintraub for her contribution to this post. For more information, please email Dennis Wade at .