Sweet smell of success: NJ Supreme Court rules in coverage suit by fragrance maker against carriers

The New Jersey Supreme Court, adopting the majority rule, held that once an insured loss has occurred, an anti-assignment clause in an occurrence policy may not provide a basis for an insurer to decline coverage based on the insured's assignment of the right to invoke policy coverage for that loss — even if the loss has not been reduced to a money judgment. At stake in this case was up to $500 million in insurance coverage for environmental contamination claims.

Issue of consent by insurers

The insurers, in essence, contended that they had not written insurance in favor of Givaudan and that any assignment to Givaudan was invalid because they had not consented to the assignment. The insurers maintained that their consent was required for a valid assignment according to the language of the insurance policies. 

The insurers asserted that the requirement that they consent to the assignment applied to the primary insurance policies and also applied, either expressly or derivatively from the underlying primary policy, to the umbrella and excess policies. 

Givaudan went to court, seeking a declaratory judgment that it was entitled to coverage under the policies as a result of the post-loss assignment. The insurers contended that the assignments were not valid without their consent because the claims had not been reduced to judgment.

The trial court ruled in favor of the insurers, an intermediate appellate court reversed, and the dispute reached the N.J. Supreme Court.

There, the insurers argued that Givaudan had no right to claim coverage under the insurance policies issued to the named insured because the named insured could not validly assign its rights under the insurance policies to Givaudan. More specifically, they contended that the purported assignment was a proscribed policy assignment, not an allowable transfer of a claim under the policy. That was so, the insurers argued, because the assignment had not transferred a claim to a post-judgment, precisely defined amount of liability.

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What did the policies say?

A representative anti-assignment clause in the policies provided:

Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon; if, however, the Named Insured shall be adjudged bankrupt or insolvent, this policy shall cover the Named Insured's legal representative as Named Insured; provided that notice of cancellation addressed to the Insured named in the Declarations and mailed to the address shown in this policy shall be sufficient notice to effect cancellation of this policy. 

The assignment of insurance rights stated:

Givaudan Flavors Corporation ("Assignor") hereby sells, transfers, assigns, conveys, grants, sets over and delivers to Givaudan Fragrances Corporation ("Assignee"), all rights to insurance coverage under the insurance policies described on Schedule A hereto for all occurrences, accidents, events, loss, injuries, damages, and liabilities arising out of the conduct of the business of Assignor, Assignee or any affiliate or predecessor of Assignor or Assignee prior to January 1, 1998, and relating to liabilities and/or assets transferred from Assignor to Assignee on or about January 1, 1998, including but not limited to any environmental liabilities (the "Insurance Rights"). 

N.J. Supreme Court's Decision

The court affirmed the ruling in favor of Givaudan.

In its decision, the court first held that, with respect to the argument about the enforceability of insurance policy anti-assignment provisions concerning post-loss claims, an anti-assignment clause was "not a barrier to the post-loss assignment of a claim." 

The court noted that this majority rule recognized that anti-assignment clauses in insurance contracts only applied to assignments "before loss," and did not preclude post-loss assignments.

Then, the court decided that the assignment to Givaudan in this case had been a post-loss claim assignment and not an attempt to assign the insurance policies themselves. 

It reasoned that the policies were occurrence policies that provided coverage based on liability for an occurrence to which the policies applied. As such, it continued, the relevant event giving rise to coverage was "the loss event, not the entry of a judgment fixing the amount of damage for that loss."

The court stated:

Here, the right to insurance coverage for the "occurrence" of environmental contamination was assigned to [Givaudan] after the policies had expired. The loss event occurred during the policy periods. The risk of exposure that was contractually undertaken by the insurer occurred prior to the assignment, and it occurred due to the actions or inactions of the entity that the insurer insured when that loss event occurred….

Accordingly, we hold that this assignment after the insured-against occurrence took place and after the conclusion of the policy period [was] an assignment of a post-loss claim. 

The court rejected the insurers' contention that it should recognize an exception to the general rule allowing post-loss claim assignments because Givaudan's claims stemmed from environmental contamination. The court said that the fact that the environmental claim would "require time to sort out liability and damages resulting therefrom" did not alter its conclusion. Simply put, it concluded, anti-assignment clauses or similar consent-to-assignment provisions did not "erect a barrier to assignment of post-loss claims that [were] not reduced to judgment."

In conclusion, the court said that it was not persuaded that the assignment to Givaudan had increased the risk undertaken by the insurers for the policy periods for which they wrote coverage, in specified amounts, for occurrence-based claims pertaining to the Givaudan site in Clifton. As such, it decided, the consent-to-assignment condition, or anti-assignment provisions, in the insurers' respective policies could not be applied to bar the post-loss claim assignment in this case. 

FC&S Legal comment

It's worth noting that the court specifically did not decide whether Givaudan was entitled to coverage under the insurance policies for its claims as a covered affiliate of the named insureds stemming from various corporate restructuring transactions.

The case is Givaudan Fragrances Corp. v. Aetna Casualty & Surety Co.