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  • The End of Pay and Chase? Proposed Changes to the CLPR Would Significantly Change Risk Transfer Paradigm in New York

    Historically, New York’s procedural rules prohibited plaintiffs from directly suing, and recovering judgments against, third-party defendants.

    In our practice, this rule most commonly comes up in two ways:

    1. Plaintiff’s recovery is limited to what the defendants can pay, regardless of the financial resources of third parties who might be liable to the defendants.
    2. Defendants are required to pay the plaintiff, and then chase third-party defendants for reimbursement under a contractual indemnification theory.

    Senate Bill S6552, which has passed the Senate and Assembly and is ready to be sent to the Governor for signature, would make both of those rules obsolete.

    In construction accident injury cases, owners and general contractors would be able to settle with plaintiffs and assign their judgment for the settlement amount against third-party defendants to the plaintiff to pursue. This would mean owner and general contractors would theoretically be able to skip paying the entire settlement amount and simply assign their right to recovery against adequately insured third-party defendants to the plaintiff.

    In construction defect cases, a plaintiff’s recovery would no longer be limited to what they can recover against the developer or sponsor. We anticipate that this change will make construction defect litigation in New York more high stakes for general contractors and subcontractors, as it essentially does away with privity defenses.

    The proposed changes would not apply to common-law contribution or indemnification claims against employers, presumably to avoid upsetting Workers’ Compensation insurance rates.

    The Construction Litigation team at Cullen and Dykman will be keeping close tabs on this Senate bill. Please reach out to us if you have questions about specific applications of these rather significant proposed rule changes.