Tested with SVN revision 1591 on NetBSD/amd64.
The label "bad_subsector" is at the end of a block when PARANOIA is not defined.
GCC 7.4.0 complains with the error message "Label at end of compound statement".
The attached patch should solve the problem.
Every development copy I have of that code has a fix for that problem, but it did not make into the svn copy. drat.
My fix had moved the return stmt into the block, so the label had a stmt.
I like your fix better, so I bashed them together a bit.