The Supreme Court of New Jersey recently confirmed that the corporate successor of an entity is entitled to insurance coverage despite the policies’ “no assignment” clauses because the loss occurred before the assignment was made. The insurance dispute in Givaudan Fragrances Corp. v. Aetna Casualty & Surety Co. et al. involved more than $500 million in insurance coverage.
[caption id="attachment_21094" align="aligncenter" width="550"] Photo courtesy of Stocksnap.io[/caption]Facts of the Case
Plaintiff Givaudan Fragrances Corporation (Fragrances) faces liability as a result of environmental contamination from a manufacturing site that its corporate predecessor, Givaudan Corporation, operated in Clifton, New Jersey. Fragrances specifically sought to obtain insurance coverage for the environmental claims related to discharges of hazardous substances that occurred during the pertinent policy periods running through January 1, 1986.
Fragrances maintained that the defendant insurance companies (defendants) wrote liability policies for Givaudan Corporation during those relevant years. The company further argued that it was entitled, either as an affiliate of Givaudan Corporation or by operation of an assignment of rights, to have the insurers provide it with coverage for that environmental liability. In response, the defendants argued that they insured Givaudan Corporation as their named insured and not Fragrances. They further maintained that their consent was required for a valid assignment according to the terms of the insurance policies.
The Appellate Division disagreed. It held that claims under a policy can be assigned without the insurer’s consent once a loss occurs, even if the policy contains an anti-assignment clause. “After the events giving rise to the insurer’s liability have occurred, the insurer’s risk cannot be increased by a change in the insured’s identity,” the appeals court explained. “Assignment clauses in insurance contracts apply only to assignments before the loss, and do not prevent an assignment after a loss.”
Court’s Decision
The Supreme Court of New Jersey affirmed the Appellate Division’s decision. “We hold that, once an insured loss has occurred, an anti-assignment clause in an occurrence policy may not provide a basis for an insurer’s declination of coverage based on the insured’s assignment of that right to invoke policy coverage for that loss,” the court’s opinion stated.
As explained by the court, the fundamental rationale supporting the -rule is that once a loss occurs, an assignment of the policyholder's rights regarding that loss in no way materially increases the risk to the insurer. As the opinion explains:
An anti-assignment clause is not a barrier to the post-loss assignment of a claim. Post-loss assignments do not further the purpose of the anti-assignment clause, which is to protect the insurer from increased liability because the insurer's risk cannot be increased by a change in the insured's identity.
The court noted, “The environmental contamination occurrence — and resultant loss — took place during the relevant policy periods. The assignment does not alter the insurers’ liability for indemnifying the underlying insured event.”
The New Jersey Supreme Court’s rule is on standard types of anti-assignment clauses and is consistent with its prior decisions as well as recent decisions from courts across the country. Although businesses should be careful to check the assignment-related language of their policies in advance of corporate transactions and act accordingly, they can perhaps feel somewhat more comfortable knowing that post-loss assignments may well be found valid, even without the prior consent of the insurer.
Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Charles Yuen, at 201-806-3364.
