The New Jersey Supreme Court has ruled in favor of Givaudan Fragrances Corporation (Fragrances) in a $500 million insurance coverage lawsuit against Aetna Casualty & Surety Company and additional insurers named as defendants.
The move affirms that New Jersey policyholders do not lose coverage when a company restructures, as an anti-assignment clause is not a barrier to the post-loss assignment of a claim.
Plaintiff Fragrances is the corporate successor of an enterprise, Givaudan Corporation, that held insurance policies drafted decades before the lawsuit: Givaudan Fragrances Corporation v. Aetna Casualty & Surety Company.
Givaudan Corporation and its corporate predecessors are manufacturers of flavors, fragrances and other chemicals. From the 1960s through the 1980s, the corporation purchased primary, excess and umbrella coverage from the defendant insurers.
The court found Fragrances had been validly assigned the rights to these insurance policies after Givaudan Corporation was restructured and split into divisions. Because of this, the court ruled that Fragrances was entitled to $500 million in insurance coverage for environmental contamination claims.
The decision comes after Fragrances faced liability as a result of environmental contamination from a manufacturing site that Givaudan operated in a facility in Clifton, N.J., from the 1960s through 1990, according to the court document.
In 2006, the U.S. Department of Environmental Protection (DEP) sued Fragrances for removal costs and damages that resulted from the discharge of hazardous substances at the Clifton site.
Fragrances then sought to obtain insurance coverage because the contamination occurred during the policy periods of its predecessor running through January 1, 1986. It argued it is entitled to coverage for environmental liability as an affiliate of Givaudan Corporation or through assignment of rights.
However, the defendant insurance companies claimed that Givaudan Corporation was insured under its own name, not Fragrances. Therefore, any assignment to Fragrances was determined invalid because it did not consent to the assignment, which is required according to the language of the anti-assignment clause in the insurance policies. Because of this, coverage was refused.
Fragrances argued in the lawsuit that its right to claim coverage under the policies could not be defeated by an anti-assignment clause that makes any assignment subject to the insurer’s consent.
A trial court initially found that Fragrances was not acquired by Givaudan Corporation during the policy period and determined it could not be an affiliated corporation covered under the policies.
However, that decision was later reversed by the Appellate Division of the Supreme Court of New Jersey.
The Appellate Division stated that although the anti-assignment clauses in the policies would normally prevent an insured from transferring a policy without the insurer’s consent, claims under a policy can be assigned without the insurer’s consent once a loss occurs, according to the court document.
The Division continued to explain that anti-assignment clauses aim to prevent the insurer from bearing an unanticipated risk. Once a loss has occurred, there is no longer any danger that the risk will increase. Because of this, the court added that post-loss assignments do not further the purpose of the anti-assignment clause, which is to protect the insurer from increased liability.
In fact, the majority rule in the U.S. is that a provision prohibiting assignment of an insurance policy or requiring the insurer’s consent to an assignment is void when applied to an assignment made after a loss covered by the policy has occurred, the decision document states.
“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 decision document stated. “Assignment clauses in insurance contracts apply only to assignments before loss, and do not prevent an assignment after a loss.”
Therefore, the court ruled in favor of Fragrances in the lawsuit, determining that post-loss insurance contract assignments are valid without the consent of the insurer.
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