Permitting Plaintiff to Obtain an Indirect Recovery Against a Third Party

Defendant in Tort Cases When the Third Party Plaintiff is Insolvent

(CPLR 1405)

The Committee recommends an enactment of a new CPLR 1405 to permit a plaintiff in tort cases to recover directly against a third-party defendant found liable to the third-party plaintiff, where the third-party plaintiff is insolvent. This proposal is made to address several divergent New York State Court of Appeals decisions which has led to an uncertain state of the law. The first case, Klinger v. Dudley, 41 N.Y.2d 362 (1977), barred a recovery by a plaintiff against a third-party defendant found liable for a portion of the damages owed plaintiff by the original defendant, where the original defendant was insolvent. The court required the judgment, or at least the original defendant's proportionate share, to be paid in full before this could happen. Several years later, however, in a similar case, Feldman v. N.Y.C. Health and Hospitals Corp., 56 N.Y.2d 1011 (1982), the court permitted a circumventive loan to get around the problem where the third party defendant was not an employer. More recently, in Reich v. Manhattan Boiler & Equipment Corp., 91 N.Y.2d 772 (1998), it held such a loan device to be ineffective when the third party defendant was an employer, stating that such a loan agreement would conflict with the public policy considerations which mandate exclusivity of the workers' compensation remedy.

The Committee believes that a plaintiff's recovery of a judgment which ultimately comes from a third-party defendant should not depend on the fortuity of the solvency of the third-party plaintiff. This proposal would allow the plaintiff to recover on a judgment for contribution against the third-party defendant, whether or not the third-party plaintiff has satisfied the underlying judgment for which contributions or indemnification is sought. Thus, in the case where a third-party plaintiff, directly liable to the plaintiff, is insolvent and is unable to pay the judgment, the plaintiff will recover that portion of the judgment owed by the third-party defendant from that defendant directly.

This proposal would not alter in any way the substantive law of workers' compensation. The 1996 Omnibus Workers' Compensation Reform Act already limits claims for contribution and indemnification against an employer to only those cases involving "grave injuries." In cases where there are not grave injuries, the employer is not liable as a matter of substantive law, and therefore this provision would not effect such employers at all. In those cases involving grave injury, the Legislature has made a policy determination that the employer should be subject to potential third-party liability. This provision would ensure that the employer's share of liability would not be dependent upon the fortuity of the solvency of the third-party plaintiff. This provision would therefore more fully effectuate the legislative judgment that employers should be subject to third-party liability in those cases involving grave injury.

 Proposal

AN ACT to amend the civil practice law and rules, in relation to permitting a plaintiff in a tort case to recover against a third party defendant in certain cases when the third party plaintiff is insolvent

The People of the State of New York, represented in Senate and Assembly, do enact as follows:

Section 1. The civil practice law and rules is amended to add a new section 1405 to read as follows:

§1405. Permitting plaintiff to obtain an indirect tort recovery against a third party defendant in certain cases.

Either a judgment creditor or a judgment debtor may recover on a judgment for contribution or indemnification regardless of whether the judgment debtor has satisfied the underlying judgment for which contribution or indemnification is sought. Where such underlying judgment is unsatisfied, any payment made by the contributing or indemnifying party shall be made directly to the judgment creditor.

§2. This act shall take effect on the first day of January next succeeding the date on which it shall have become law, and shall apply only to actions commenced on or after that date.