NJ Supreme Court Holds Post-Loss Assignment by Insured Valid

Adopts majority rule finding anti-assignment clause in policy not a basis to deny coverage.   

The New Jersey Supreme Court, applying New Jersey law, upheld the appellate court and adopted the majority rule that an insured can validly assign its rights under insurance policies without the insurer’s consent once a loss has already occurred.  Thus, the anti-assignment clause in an occurrence policy is not a basis to deny coverage for loss that has already occurred.

Givaudan Corporation manufactured flavors, fragrances, and other chemicals.  Beginning in the 1960s and through the 1980s, Travelers Casualty & Surety Co. (“Travelers”), Allstate Insurance Co. (“Allstate”), Continental Casualty Co. (“Continental”) and others (collectively, the “insurers”) issued insurance policies to Givaudan Corporation.  The named insured on the primary policies was “Givaudan Corporation and any subsidiary or affiliated companies which have or may now exit or hereafter be created.” The umbrella policies included similar language naming Givaudan Corporation and its successors.   In 1987, the New Jersey Department of Environmental Protection determined that Givaudan Corporation’s manufacturing activities contaminated the soil and groundwater with hazardous materials at a Clifton New Jersey site.  Ultimately, orders were entered and Givaudan Corporation was required to remediate the damage and pay certain costs. The orders stated that they were binding upon not only Givaudan Corporation, but also its successor and assigns.  In the 1990s, a series of complex corporate mergers, transfers, and re-formations led to the creation of Givaudan Fragrances Corporation (“Fragrances”) and Givaudan Flavors (“Flavors”).  Flavors became the corporate successor-in-interest to Givaudan Corporation.   Fragrances and Flavors are now affiliated companies owned by the corporate parent, Givaudan Flavors and Fragrances, Inc.

In 2009, after being sued in a third-party contribution action related to Givaudan Corporation’s contamination at the Clifton New Jersey site, Fragrances sought a ruling that it was insured under Givaudan Corporation’s policies.  Then, in March 2010, Flavors assigned to Fragrances all of Flavor’s insurance rights under the policies at issue. The insurers refused to recognize the assignment and argued that the policies prohibited assignments without their consent, which had not been granted. Fragrances countered that the assignment was valid and binding on the insurers. The trial court rejected Fragrance’s argument that it had policy rights as an affiliated corporation because Fragrances was not acquired by Givaudan Corporation during the policy period.  The trial also held that the assignment was invalid because there was an assignment of more than “a single claim and single insurance rights.”   The appellate court reversed and remanded.  It found that the trial court erred, noting that a policyholder can assign insurance rights after a loss had already occurred because there is no transferring of the risk.

On appeal, Fragrances argued that it was entitled to the coverage for the environmental liability either as an affiliate of Givaudan Corporation or by operation of an assignment of rights.  The insurers claimed that they insured Givaudan Corporation as their named insured, not Fragrances and any assignment to Fragrances was invalid because they did not consent to the assignment as required under the language of the anti-assignment clause found in their insurance policies.

The majority rule in the United States is that “a provision that prohibits the assignment of an insurance policy, or that requires the insurer’s consent to such an assignment, is void as applied to the assignment made after a loss covered by the policy has occurred.”  The New Jersey Supreme Court found that New Jersey’s case law supported adopting the majority rule.  The New Jersey Supreme Court also noted that the California Supreme Court’s 2015 decision in Fluor Corp. v. Superior Court, which also adopted the majority rule on post-loss assignments, was particularly instructive because it explored the legal landscape on anti-assignment clauses and because it departed from the court’s prior decision in Henkel Corp v. Hartford Accident & Indemnity Co.  According to the New Jersey Supreme Court, “post-loss assignments do not further the purpose of the anti-assignment clauses, which ‘is to protect the insurer from increased liability,’ because, 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 New Jersey Supreme Court held that an anti-assignment clause in an occurrence policy is not a basis to deny coverage once a loss has occurred.

The New Jersey Supreme Court found that Flavor’s assignment to Fragrances was a post-loss claim assignment and not an attempt to assign the insurance policies themselves, and therefore, the majority rule, as adopted by the New Jersey Supreme Court, applied.   In rejecting the insurers’ arguments to the contrary, the New Jersey Supreme Court noted that the policies at issue are occurrence based policies, the loss event took place during the policy periods, and the assignment took place after the policy periods had expired.  Therefore, according to the New Jersey Supreme Court, “no new policy coverage for not-yet-occurred loss to the assignee could have been transferred.”  Based on its ruling regarding post-loss assignment, the New Jersey Supreme Court did not address Fragrances’ contention that it was also entitled to coverage as an affiliated company.  Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., No. 076523 (N.J. Feb. 1, 2017).