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March 17, 2020

NY Plaintiffs Still Unable to Recover Directly Against Third Parties

During the waning days of 2019, Governor Cuomo vetoed Senate Bill S6552, which would have allowed a plaintiff’s direct recovery from a third party under certain circumstances without proving a direct cause of action against the third party. The bill closely tracked Insurance Law § 3420(a)(2), which allows a plaintiff to directly recover against a judgment debtor’s insurer if the judgment is not satisfied within 30 days.

This radical modification would have overruled long-standing NYS case law. The bill was drafted to apply when the plaintiff has an unsatisfied judgment for 30 days, and the judgment debtor has a corresponding judgment against a co-defendant or third-party defendant for contribution or indemnification. Upon satisfying these conditions, the plaintiff would be entitled to directly recover from the co-defendant or third-party defendant even in the absence of a direct cause of action against that party.

New York’s Legislature passed the bill on the premise that a plaintiff’s right to recover should not depend on the solvency of the judgment debtor where the liability of a third party for contribution or indemnity has already been established. Instead, the Legislature adopted the view that a plaintiff should be entitled to recover a judgment for contribution or indemnification directly against the third party.

In response to the bill’s passage, the New York State Bar Association (NYSBA) urged the Governor’s veto, citing the NYS Court of Appeals precedent in Klinger v. Dudley that held that a plaintiff must only recover damages from the party whom they directly sued. The NYSBA asserted the bill would fundamentally change NYS jurisprudence and implicate due process concerns. It would have allowed recovery from a party the plaintiff never sued and likely never offered any evidence against. The concerns were magnified where the third party was liable to the judgment debtor solely upon contractual indemnification. In this scenario, the plaintiff was not likely an intended beneficiary to the contract and otherwise had no right to recover under the agreement.

Despite his open support for the underlying policy objective, Governor Cuomo reluctantly agreed with the NYSBA and vetoed the bill, citing the NY Compensation Insurance Rating Board’s conservative estimate that the bill would have resulted in a 11.2 percent increase in insurance premiums and an annual loss increase of $150 million.

Therefore, for now, a plaintiff may only recover damages from a party they sued. We will provide further updates as they are made available.

If you have any questions regarding the content in this alert, please contact Ryan Altieri, associate, at raltieri@barclaydamon.com or another member of the firm’s Torts & Products Liability Defense Practice Area.

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