A captive insurer in the construction industry, along with three construction contractors, has filed a lawsuit in New York, alleging a large fraud scheme. This scheme reportedly involves staged workplace accidents and fraudulent workers’ compensation and personal injury lawsuits, supported by lawyers and medical providers.
The lawsuit, filed by Ionian RE in federal district court, claims the fraud included fake falls on construction sites that were unwitnessed. These incidents could result in hundreds of millions of dollars in workers’ compensation payments and liability insurance settlements. The suit specifically targets several personal injury law firms, including Subin & Associates, LLC; Wingate, Russotti, Shapiro, Moses & Halperin, LLP; and William Schwitzer & Associates, P.C. It also names 12 clients who are allegedly connected through family or personal relationships.
The lawsuit argues that the scheme exploits New York’s Labor Law 240 (1), known as the Scaffold Law. This law holds construction companies and property owners fully liable if a worker falls from any height and is injured on the job. Additionally, the complaint includes claims under the Racketeer Influenced and Corrupt Organizations (RICO) Act.
Ionian RE is a Vermont-based reinsurance captive for the firm Andromeda and its affiliates, which provide safety and risk management services to the construction industry.
Details of the Scheme
The lawsuit claims that since at least 2017, the law firms have orchestrated a scheme to recruit construction workers to stage fake accidents. They allegedly participated in staging these accidents, prepared and filed fraudulent workers’ compensation claims, and provided unnecessary medical services to inflate the value of claims.
The complaint outlines 12 cases where workers supposedly fell from heights or down stairs, resulting in injuries covered by insurers and contractors like Skyline Restoration Inc., Urban D.C. Inc., and DNA Contracting & Waterproofing. The staged accidents reportedly occurred shortly after the workers began their jobs, and many claimants were related to each other.
For workers’ compensation claims, the law firms allegedly referred claimants to other attorneys who represented them before the New York State Workers’ Compensation Board, earning fees based on settlements. In terms of general liability, the law firms are said to have filed lawsuits against various parties involved in the construction projects, including owners and general contractors.
According to the lawsuit, both general liability lawsuits and workers’ compensation claims were often pursued at the same time to maximize profits for those involved in the scheme.
The complaint also states that medical providers inflated injury claims through exaggerated procedures and false diagnoses, providing fraudulent documentation to increase settlement amounts in exchange for continued patient referrals and additional litigation funding.
One of the defendant law firms, Subin, reportedly filed motions to withdraw from hundreds of cases, including six of the twelve mentioned in the lawsuit, once the scheme was exposed.
Damages
Ionian RE claims it has incurred significant costs reimbursing primary insurers, such as Liberty Mutual, for the fraudulent lawsuits. The company reports that its general liability claim adjustment expenses rose from $3.15 million in 2018 to $18.4 million in 2023, marking a 484% increase. Additionally, Ionian states that its outstanding liability under general liability claims increased by 722% to $58.75 million during the same period.
The lawsuit notes that while the costs of construction-related claims have dramatically increased, the overall number of workplace injuries has decreased.
The other plaintiffs: Skyline, Urban, and DNA Contracting & Waterproofing—have also made deductible payments for the fraudulent claims and have seen their insurance premiums rise due to the number of these claims.
This lawsuit follows a previous RICO lawsuit filed by Ionian RE on October 8, 2024, targeting another law firm, Gorayeb & Associates, P.C., and several medical providers involved in fraudulent practices. In a separate action in New York County Supreme Court, Ionian and Liberty Mutual sued an individual for filing a false workers’ compensation claim, winning by default when the defendant did not respond.
New York’s Scaffold Law has faced criticism from the construction industry and insurers for increasing costs on construction projects. This law makes property owners and contractors liable for most injuries related to falls. Critics have called for reforms or repeal, alleging that the plaintiffs’ bar exploits the law for profit. However, labor advocates argue that the law protects workers and question claims of rising costs.
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