New Jersey Appellate Court Rules That Insurance Rights May Be Transferred Without Consent of Carrier After The Events That Trigger Coverage

In Givaudan Fragrances Corporation v. Aetna, the Appellate Division of the New Jersey Court held that an assignee was permitted to pursue coverage on policies that were written to a different insured. The Appellate Division’s decision will certainly help companies, or individuals, who are successors in interest to a policy holder to obtain coverage for events that happened during the policy period, years or even decades ago, even if they themselves were not named insureds under the policy.

In this case, the policies were issued in 1964 – 1986 to Givaudan Corporation. Due to contamination at a Clifton, NJ facility in 1987 and 1988, Givaudan Corporation entered into Administrative Consent Orders with the New Jersey Department of Environmental Protection which provided for remediation. Thereafter, there were numerous corporate reorganizations that resulted in the creation of Givaudan Fragrances Corporation (GFC), which inherited various assets and liabilities, including the environmental liabilities associated with the Clifton facility.

In the 2000s, US EPA and the NJDEP commenced administrative proceedings and litigation against GFC relating to the Clifton property and alleged discharges from the property to the Passaic River. The dredge remedy for the Passaic River is expected to cost from $500 million to $1.7 billion, a new record for a Superfund cleanup.

GFC sought insurance coverage under the policies issued to Givaudan Corporation with regard to the USEPA and NJDEP actions. The carriers declined to provide coverage because GFC was not a named insured and the policies required consent of the carriers (which was neither sought nor given) to effectuate an assignment. GFC commenced a suit for coverage, and a year later, Givaudan Corporation (then called Givaudan Flavors) assigned its “insurance rights” to GFC.

GFC and the carriers sought summary judgment on the question of whether there had been an effective assignment, i.e., was GFC an insured. The trial court granted the carriers’ motion and dismissed the complaint, finding that the assignment was not merely a transfer of a limited claim but was, in effect, a transfer of the policy without carrier approval.

The Appellate Division reversed, reinstated the complaint and granted GFC’s motion for partial summary judgment, explaining that for occurrence-based policies, “the peril insured is the occurrence itself.” Therefore, “[o]nce the occurrence takes place, coverage attaches even though the claim may not be made for some time thereafter.” So, although a policy cannot be assigned, once a loss occurs, an insured’s claim under a policy may be assigned without the insurer’s consent. This is because the carrier’s risk has not been enlarged by the assignment. Instead, an assignment merely alters the identity of the claimant. The carriers’ “obligation to provide coverage to the party deemed to be an insured under the policies arose at the time of the loss. Although the precise amount of defendants’ liability may not be known, defendants’ obligation to insure the risk in accordance with their respective policies was not altered by the assignment.”

Clearly, this case will pave the way for the transfer of “insurance rights” after the occurrence of events giving rise to coverage, without the need for insurer approval.

N.B.: The California Supreme Court just last week reached the same conclusion in a case involving asbestos claims. A post will follow on the specifics of that decision.