New York State has enacted legislation regulating third-party litigation funding, a practice that has grown significantly in recent years and has contributed to increased claim costs across multiple lines of insurance.
On December 20, 2025, Governor Kathy Hochul signed the Consumer Litigation Funding Act into law. The statute establishes regulatory standards for companies that provide cash advances to plaintiffs in exchange for a share of future lawsuit recoveries. The law follows years of concern from insurers, policyholder advocates, and consumer groups regarding the lack of oversight in this area.
New York AVOID Act: Who It Applies To
The New York AVOID Act applies to all defendants in civil actions pending in or filed in New York State courts who seek to assert third-party claims under CPLR §1007. The statute is industry-neutral and affects any defendant pursuing contractual or common-law indemnification, contribution, or other derivative liability claims against third parties.
The Act becomes effective April 20, 2026, and applies to any case pending as of that date or commenced thereafter. Third-party complaints filed before April 20, 2026 are not affected.
What the AVOID Act Changes
Effective April 20, 2026, the AVOID Act imposes strict, statutory deadlines for third-party practice that did not previously exist under the CPLR.
Key changes include:
- Initial third-party complaints: Must be filed within 60 days after service of the defendant’s answer. For cases pending on April 20, 2026, the deadline is the later of April 20, 2026 or 60 days after service of the answer.
- Successive third-party complaints: Subject to progressively shorter deadlines of 45 days, 30 days, and 20 days, depending on the procedural posture of the case.
- Extensions: Limited to a maximum of 30 days, even for good cause.
- Note of issue: No third-party complaints may be filed after a note of issue is filed, regardless of circumstances.
These provisions represent a significant departure from prior practice, where impleader often occurred after depositions clarified responsibility. Courts will have little discretion to excuse late filings.
Why This Matters Across Industries
Although construction and Labor Law cases were a clear catalyst for the legislation, the AVOID Act will materially affect any industry that relies on contractual risk transfer or multi-party defense strategies, including:
- Construction and infrastructure
- Real estate ownership and property management
- Manufacturing and product distribution
- Transportation and logistics
- Healthcare, senior living, and staffing-driven operations
- Hospitality, retail, and commercial operations
In many of these matters, the identity of responsible contractors, vendors, or affiliates is not known when the initial answer is filed. Under the new law, that uncertainty no longer tolls the impleader deadline.
Claims Handling and Litigation Implications
The AVOID Act will require meaningful changes to claims handling, litigation strategy, and internal workflows.
- Timing is outcome-determinative. A missed impleader deadline may force defendants into a separate action, increasing cost and inefficiency.
- Earlier and more aggressive investigation. Field investigations, document collection, and subpoenas must begin immediately upon notice of claim, often before a complaint is served.
- Accelerated tender and third-party identification. Policyholders and insurance carriers will have weeks to evaluate coverage and identify potential third parties.
- Increased early motion practice and protective impleaders. Expect early motion activity and an increase in third-party complaints filed to preserve rights.
- Higher early-stage defense costs. Investigation and discovery will be front-loaded, shifting spend earlier in the life of a case.
Conclusion
The AVOID Act materially changes third-party practice in New York. It converts what was once a strategic and flexible decision into a time-sensitive statutory obligation. For policyholders in any industry that relies on contractual risk transfer, early action is key for loss transfer.
SterlingRisk is available to discuss how these changes may affect your organization’s claims handling, litigation strategy, and insurance recovery practices.
If you have questions about this legislation or its implications for your insurance program, please contact your SterlingRisk representative.
DISCLAIMER: This article is provided by SterlingRisk Insurance for general informational purposes only and should not be construed as legal or insurance advice. Always review your individual policy terms and consult your broker or legal counsel regarding your specific situation.
