Coverage Pointers - Volume VIII, No. 26a
A Dollar and a Dream:
New York Legislature Amends Statute
in Effort to Promote the Voluntary Release of Non-liable Parties
A Review of Chapter 70 of the Laws of 2007
V. Christopher Potenza
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Tired of paying to defend your insured at a trial in which the plaintiff does not even want the insured there? Tired of overpaying on a release just to make it worth the plaintiff’s risk that a co-defendant will not diminish plaintiff’s recovery by pointing the finger at an empty chair defendant? Well, the New York Legislature has amended General Obligations Law 15-108 in an effort to make it easier for a claimant to release a defendant perceived to be not liable, without facing the risk that the clever non-settling defendant can lessen their liability at trial, and lighten plaintiff’s recovery, by pointing the finger at the empty chair of the released defendant.
New York General Obligation Law 15-108 provides that a non-settling defendant can reduce the damages applied against it after verdict by the monetary amount of the settlement or by the percentage of liability found against the settling defendant, whichever is greater. The release and covenant not to sue granted by the plaintiff to the settling defendant not only bought the settling defendant’s peace with the plaintiff, but also extinguished any claims for contribution by the co-defendant(s). In practice, a plaintiff would be very reluctant to agree to release, even for nominal or “nuisance value” consideration, a defendant for whom it appears there is no liability, due to the risk that the co-defendant will prove some portion of negligence against that defendant at trial, and thus potentially lighten plaintiff’s recovery substantially. Due to these constraints, defendants who appeared to have no liability were forced to move for summary judgment, and/or remain in the case through trial. These summary judgment motions often would be opposed by co-defendants as such an order would extinguish their potential claims for contribution as well.
The legislature has passed the following amendment in an effort to promote the voluntary discontinuance of parties for which there appears to be no liability by alleviating the plaintiff’s fear that their recovery could be reduced at trial, without totally extinguishing a co-defendants potential claim for contribution against that released defendant:
ARTICLE 15. MODIFICATION AND DISCHARGE OF OBLIGATIONS
TITLE 1. DISCHARGE OF JOINT OBLIGORS
(d) [Eff July 4, 2007]
Releases and covenants within the scope of this section. A release or a covenant
not to sue between a plaintiff or claimant and a person who is liable or claimed
to be liable in tort shall be deemed a release or covenant for the purposes of
this section only if:
(1) the plaintiff or claimant receives, as part of the agreement, monetary consideration greater than one dollar;
(2) the release or covenant completely or substantially terminates the dispute between the plaintiff or claimant and the person who was claimed to be liable; and
(3) such release or covenant is provided prior to entry of judgment.
Subdivision (1) of the amendment provides that a voluntary discontinuance (i.e. a release given for consideration of one dollar or less) does not entitle remaining defendants to the typical 15-108 offset, yet also still leaves for the door open for a claim of contribution by that defendant.
Subdivision (2) of the amendment targets high/low agreements, which have just garnered greater attention due to the recent Court of Appeals decision in Reynolds. A high/low agreement is NOT a settlement for purposes of GOL 15-108. The language of subdivision (2) that the release or covenant “completely or substantially terminates the dispute between the plaintiff or claimant and the person who was claimed to be liable” excludes high/low agreements from the purview of this statute because although the scope of the dispute may be narrowed in some degree, the dispute nonetheless forges on. While prior to this amendment, a defendant could argue that a high/low agreement is a de facto settlement and covenant not to sue entitling the co-defendants to the 15-108 offset provisions, this amendment implies that high/low agreements are not such covenants, and thus the 15-108 offset provisions do not apply. As cautioned by the Court of Appeals in Reynolds however, these high/low agreements must be disclosed to the court and counsel prior to trial. For a more detailed analysis on the future of high/low agreements in multi-party litigation based on the recent changes in the law, please see the accompanying article The Death of High/Low Agreements in Multi-Party Litigation.
Subdivision (3) of the amendment is merely a codification of the common-law rule that post-judgment settlements are excluded from the offset provision of 15-108, and thus a plaintiff is able to accept partial payment from a defendant who is short on assets without impacting the rights of recovery against other defendants.