Coverage for Post-Loss Assignments Despite Anti-Assignment Clauses

A recent New Jersey Supreme Court ruling, Givaudan Fragrances Corporation v. Aetna Casualty & Surety Company, et al., affirmed that anti-assignment clauses do not bar post-loss assignment policyholders from coverage.  This ruling puts insurance companies across New Jersey on notice that an anti-assignment clause does not bar post-loss assignment of claims made without the insurer’s consent.

In this matter, the plaintiff, Givaudan Fragrances Corporation (Fragrances), brought a claim seeking coverage under insurance policies provided to Givaudan Corporation by the defendants, Aetna Casualty & Surety Group (defendants).  Fragrances was seeking coverage for a lawsuit brought against the company by the United States Department of Environmental Protection, following environmental contamination affecting the ground and a lake near the company’s manufacturing facility, located in Clifton, New Jersey.  Givaudan Corporation had purchased primary, excess, and umbrella coverage from defendants from the 1960s through the 1980s.  Importantly, the contamination occurred during the relevant period of the policy issued by the defendants, which was set to run through January 1, 1986.

As such, plaintiff, Fragrances, claimed that as an affiliate of Givaudan Corporation, or through operation of an assignment of rights, that it was entitled to coverage for environmental liability.  Defendants argued that the named insured was Givaudan Corporation, and that any assignment from Givaudan Corporation to Fragrances was not valid because the defendants did not consent to the assignment, which was required by the insurance policies.  Plaintiff then filed a complaint in 2009 seeking a declaratory judgment that it was entitled to insurance coverage for environmental liability under the Givaudan Corporation’s policies with the defendants.  While the declaratory judgment was pending, Fragrances put defendants on notice that Givaudan Roure Flavors Corporation (Flavors), the corporate successor-in-interest to Givaudan Corporation, was planning to assign its post-loss rights to Fragrances.    Defendants would not consent to the assignment of post-loss rights from Flavors to Fragrances.  Both plaintiff and defendants moved for summary judgment at that time.

The trial court denied plaintiff’s motion for summary judgment but granted defendant’s cross-motion for summary judgment based upon the fact that Givaudan Corporation did not acquire Fragrances during the policy period and that this case involved an assignment of policies that could not be assigned.   The Appellate Division reversed and remanded the trial court’s decision, holding that despite the anti-assignment clauses, which ban an insured from transferring a policy without the insurer’s consent, once a loss occurs, an insured’s claim under the policy can be assigned without the consent of the insurer.  The Supreme Court affirmed the Appellate Division, holding that, after a loss has occurred, an anti-assignment clause cannot be the basis for an insurer’s refusal to provide coverage based upon the insured’s assignment of the right to invoke the policy coverage for the subject loss.  As this was a post-loss claim assignment, the rule voiding application of anti-assignment clauses to any such assignment was applicable. 

The Supreme Court held that an anti-assignment clause does not bar post-loss assignment of a claim because a post-loss assignment does not further the purpose of the anti-assignment clause, which is to protect the insurer from increased liability, as the change in the insured’s identity does not increase the insurer’s risk.  Specifically, the Supreme Court held that “[a]fter 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.”  Thus, the Supreme Court ruled that when there is a valid post-loss claim assignment for a given claim, the insurer has a duty to defend the assignee as the holder of the claim.  Therefore, in light of the foregoing, it is vital that insurers across New Jersey are aware that post-loss insurance contract assignments for policies with anti-assignment clauses are valid even without the insurer’s consent.