In Givaudan Fragrances Corporation v. Aetna Casualty & Surety Co., N.J. No. 076523, 2017 WL 429476 (Feb. 1, 2017), the Supreme Court of New Jersey, in a case of first impression, decided whether an anti-assignment clause contained in an insurance policy prohibits the assignment of post-loss claims. The Court held 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. . . .” Id. at *3.
The defendants, several insurers, issued primary, excess, and umbrella policies from the 1960s through the 1980s to Givaudan Corporation—a Swiss company that manufactured chemicals, fragrances, and flavors at a facility located in Clifton, New Jersey. Givaudan Corporation, through several transfers and corporate mergers, eventually became Givaudan Flavors Corp.—an affiliate of plaintiff, Givaudan Fragrances Corporation. Givaudan Corporation’s operations contaminated the Clifton site and the New Jersey State Department of Environmental Protection and the United States Environmental Protection Agency brought environmental claims against Givaudan Fragrances for cleanup and removal costs as well as other damages. Givaudan Fragrances provided notice to the insurers, but all insurers denied coverage claiming that Givaudan Fragrances was not the named insured under the policies. Thereafter, Givaudan Fragrances brought this declaratory judgment action asking the court to make a coverage determination. While the action was pending, Givaudan Flavors assigned its post-loss rights under the policies to Givaudan Fragrances.
The New Jersey Supreme Court’s Rationale
The New Jersey Supreme Court was faced with the issue of whether the assignment of the post-loss claim was valid despite an anti-assignment clause contained in the policies. In deciding the case, the Court looked to public policy and New Jersey precedent.
In its analysis, the Court noted that the majority rule “is that a provision that prohibits the assignment of an insurance policy, or that requires the insurer’s consent to such assignment is void as applied to an assignment made after a loss covered by the policy occurred. Id. at *10. The Court further elaborated that “once the loss has triggered the liability provisions of the insurance policy, an assignment is no longer regarded as the transfer of the actual policy. Instead, it is a transfer of a chose in action under the policy.” Id. (emphasis in original), citing Conrad Bros. v. John Deere Ins. Co., 640 N.W.2d 231, 237-238 (Iowa 2001). The Court noted that the majority rule was “deeply rooted public policy against allowing restraints on alienation of choses in action.” Givaudan Fragrances Corporation, 2017 WL 429476, at *10.
The Court also analyzed whether allowing assignment of the post-loss claim would increase the insurers’ risk. The insurers argued that permitting the assignment, despite the anti-assignment clause, would increase the insurers’ risk for which they wrote coverage because the insurers “may have to provide a defense and indemnity” to the named insured and assignee—rather than only the named insured. Id. at *7. The Court, however, disagreed, finding that “the assignment of the rights to the policies . . . could not have increased the risk to any defendant insurer because all losses occurred before the assignment.” Id. at *15.
Finally, the Court looked at prior decisions of lower courts in New Jersey, which adopted the general rule recognizing “that anti-assignment clauses in insurance contract apply only to assignments before loss and do not prevent an assignment after loss.” Id. at *15; see, Flint Frozen Foods v. Firemen’s Fund Ins. Co., 12 N.J. Super. 396, 399, 79 A.2d 739 (Law Div.1951), rev’d on other grounds 8 N.J. 606, 86 A.2d 63 (1952) (holding that once a loss occurs, the assignment is of the loss and not the policy and, thus, the assignment is not barred by an anti-assignment provision); see also, Elat, Inc. v. Aetna Cas. & Sur. Co., 280 N.J.Super. 62, 67, 654 A.2d 503 (Super.App.Div.1995) (“[T]he purpose behind a no-assignment clause in a casualty or liability policy... is to protect the insurer from insuring a different risk than intended. Assignment of the right to collect or to enforce the right to proceed under a casualty or liability policy does not alter, in any meaningful way, the obligations the insurer accepted under the policy. The assignment only changes the identity of the entity enforcing the insurer’s obligation to insure the same risk.”). The Court agreed with the lower courts and adopted the same position. Id. at *14.
In sum, the New Jersey Supreme Court’s policyholder-friendly decision in Givaudan Fragrances allows for the assignment of post-loss claims despite anti-assignment clauses in the policy.