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New Jersey Section 2C:35B-7 – No third party damage payments; assignment of cause of action restricted

New Jersey Law Restricts Third Party Damage Payments in Drug Cases

New Jersey has a specific law, Section 2C:35B-7, that restricts third parties from paying damages awarded in drug cases. This law has important implications for insurance companies, defendants, and plaintiffs in drug-related lawsuits. Let’s break it down in simple terms.

What the Law Says

The law states that if someone sues a defendant for damages related to illegal drug use, a third party cannot pay those damages on the defendant’s behalf. For example, if Bob sues Joe for damages caused by Joe selling him illegal drugs, Joe’s insurance company cannot pay the damages for Joe.

There are two key parts to the law:

  1. Third parties cannot pay damages awarded under this law
  2. Defendants cannot assign their right to sue a third party to the plaintiff

This applies even if the third party (like an insurance company) would normally cover the type of damages awarded.

Why New Jersey Passed This Law

The goal was to prevent insurance companies from essentially subsidizing illegal drug activities. The legislature felt it was bad public policy for insurers to pay damages for something illegal like drug distribution.

They wanted to make sure drug dealers and manufacturers couldn’t pass off the costs of their illegal behavior onto insurance companies. This law forces defendants in drug cases to pay awarded damages themselves, rather than relying on a third party like an insurer.

How the Law Affects Insurance Policies

Insurance companies doing business in New Jersey have to include exemptions in their policies for damages related to illegal drug activities. This is because the law prohibits them from paying such damages on behalf of their insured.

For example, a homeowner’s insurance policy might state: “We do not cover any damages awarded under Section 2C:35B-7 of New Jersey law.”

What About Other Assets and Bankruptcy?

The law only restricts third parties like insurers from paying damages awarded under this statute. It does not prevent defendants from using their own assets to pay damages.

However, a defendant could still try to avoid paying by transferring assets or declaring bankruptcy. But the plaintiff might be able to challenge those actions in court as fraudulent conveyances.

Effects on Lawsuits and Settlements

This law makes it riskier for defendants in drug-related lawsuits. They can’t rely on their insurer to pay damages on their behalf. This gives plaintiffs more leverage in settlement negotiations.

Defendants have to think about paying any damages awarded out of their own pocket. This makes them more likely to settle cases rather than risk going to trial and facing a big jury verdict.

It also discourages frivolous lawsuits, since plaintiffs know defendants don’t have insurance coverage as a backstop. Plaintiffs need strong evidence to get sizable damages awarded.

Assignment of Causes of Action is Also Restricted

The law has a second key provision. It prohibits defendants from assigning their right to sue a third party to the plaintiff.

For example, Joe cannot assign his right to sue his insurance company to Bob as part of their lawsuit settlement. The legislature wanted to prevent end-runs around the law.

Exceptions – When Can Third Parties Pay?

There are two exceptions where third parties can pay damages:

  1. If required by a separate statutory provision or court rule
  2. If the third party’s payment is not made on behalf of someone covered by the law

So for example, a court might order a pharmaceutical company to pay damages to the state in a drug nuisance lawsuit. Or a mother might pay damages awarded against her adult son, but the son cannot force her to pay.

How Might Defendants Try to Get Around This Law?

Savvy defendants may try creative ways to shift liability for damages awarded under this law:

  • Settling cases confidentially so insurers still indirectly pay
  • Having a third party pay damages awarded against a spouse or family member
  • Transferring assets to make themselves judgement-proof

However, courts can step in to halt these tactics if they violate the intent of the law. Plaintiffs can also challenge questionable asset transfers.

The Purpose – Holding Drug Offenders Accountable

This law ultimately aims to hold those who profit from illegal drugs accountable. It forces them to pay damages out of their own pocket rather than passing off the costs.

The legislature wanted drug dealers and manufacturers to feel the financial sting when their activities harm others. Insurance should not absolve them of responsibility.

While the law’s goals are sound, it also limits plaintiffs’ ability to actually collect on damages awarded. Defendants skilled at hiding assets can still often avoid paying. There are pros and cons, like most laws.

But overall, Section 2C:35B-7 reflects New Jersey’s strong public policy of getting tough on drug crimes. The courts will likely interpret it broadly in favor of plaintiffs and against insurance coverage. Defendants involved in the drug trade face substantial risks and need experienced counsel.

So in summary, this law restricts insurance companies and other third parties from paying damages awarded against defendants in drug cases. It aims to hold drug offenders financially accountable. But skilled defendants can still often avoid paying if they lack sufficient attachable assets.

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