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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 13, 2018

Court Dismisses Claim Based on Theory That Defendant Was a Third-Party Beneficiary of Contract

On May 7, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Labor Law 240 Risk Management, LLC v. CRC Insurance Services, Inc., 2018 NY Slip Op. 30859(U), dismissing a claim based on a third-party beneficiary theory, explaining:

Acknowledging it is not a party to the MPA, plaintiff LL240RM contends it may nevertheless pursue a breach of contract claim against AmTrust as a third-party beneficiary of the MPA, because CRC delegated to LL240RM the performance of certain of CRC’s obligations under the MPA.

The third-party beneficiary concept arises from the notion that it is just and practical to permit the person for whose benefit the contract is made to enforce it against one whose duty it is to pay or perform. To assert a claim as a third-party beneficiary, the plaintiff must establish: (1) a valid and binding contract between other parties; (2) that the contract was intended for the plaintiff’s benefit; and (3) the benefit was immediate, not incidental, indicating that the parties to the contract assumed a duty to compensate plaintiff if the benefit is lost.

Under the standards in the Restatement (Second) of Contracts for determining claims of third-party rights, the plaintiff must be an intended, not incidental, beneficiary, such that performance of the promise satisfies the obligation of the promisee to pay money to the third party beneficiary, or the circumstances show that the promisee intends to give the beneficiary the benefit of the promised performance. It must show that no one other than the third party can recover if the promisor breaches the contract, or that the contractual language clearly evidences an intent to permit enforcement by the third party. The parties intent to benefit the third party must be apparent from the face of the contract, and their manifestation of intent must be sufficient to make the beneficiary’s reliance probable and reasonable. Absent clear contractual language evincing such intent, New York courts have demonstrated a reluctance to interpret circumstances to construe such an intent.

Here, LL240RM is not a promisee of AmTrust, and the MPA does not require any performance to be rendered to LL240RM Under the MPA, AmTrust’s payments run to CRC, not LL240RM, which was paid pursuant to a separate agreement with CRC, the UMSA (Underwriting Management Services Agreement). AmTrust did not retain CRC, as its managing producer for the Program, for LL240RM’s benefit LL240RM fails to point to any language indicating that AmTrust and CRC, as the parties to the contract, intended that the MPA was for the benefit of LL240RM, and that they assumed a duty to compensate LL240RM if the benefit was lost, CRC dearly had the right to recover from AmTrust if AmTrust breached the MPA, however, there is no language in that agreement indicating the parties intended to give LL240RM an individually enforceable right thereunder.

(Individual quotations and citations omitted).

Usually, the only parties who have rights under a contract are the parties that signed the contract. Here, a party tried–but failed–to base a claim on being a third-party beneficiary of a contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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