A third-party liability policy provides coverage for an insured’s liability to third parties for personal injury or property damage caused by the insured’s actions. Most liability policies are occurrence based. In order for a loss to be covered under an occurrence-based policy, the acts giving rise to liability must “occur” during the policy period. It does not matter when a claim is actually asserted as long as the acts causing the damage took place during the policy period.
In cases involving environmental contamination, which can take decades to manifest, claims may be asserted under policies that were issued, and expired, many decades ago. Given the passage of time between the acts giving rise to potential liability and the assertion of a claim, the insured that purchased the policies may no longer exist at the time a claim is asserted. Thus, a question may arise as to who has a right to assert a claim under the policies. Another issue that occurs with some frequency is whether an insured can assign any claims it may have under its policies to another entity that assumes some or all of its liabilities. Both of these issues were recently before the New Jersey Appellate Division in Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 2014 WL 10212769 (App. Div. Aug. 12, 2015). However, the court only dealt with the latter issue (i.e., the assignment of claims under decades-old insurance policies), finding that that issue was dispositive.
The case involved claims for costs incurred to remediate environmental contamination of soil and groundwater. The policies in question were issued between 1964 and 1986 and had been assigned to the plaintiff in 2010, long after they had expired, by the plaintiff’s predecessor corporations. The plaintiff acquired the rights under the policies through “a series of very complex corporate mergers, transfers, and re-formations . . . .” Id. at *1.
The insurers who issued the policies refused to recognize the assignment of the policies to the plaintiff. The policies explicitly prohibited assignment without the consent of the insurers and such consent was never obtained. The plaintiff moved for summary judgment and the insurers cross-moved for summary judgment. The trial judge ruled in favor of the insurers, finding, among other things, that the assignment was not valid.
On appeal, the Appellate Division reversed. As noted by the court, since at least the 1950s, New Jersey courts have held that an insured may assign a claim or potential claim under an occurrence-based policy after a loss occurs. The reasoning behind this rule is that liability under an occurrence-based policy attaches once the occurrence takes place even though no claim has been asserted. Thus, the insurer becomes obligated to the insured on the date of the loss and that obligation may freely be assigned.
The court concluded that any claims under the policies could be assigned despite the existence of a non-assignment clause in the policies that requires the insurers’ consent to any assignment. As explained by the court:
The purpose behind a no-assignment clause is to protect the insurer from having to provide coverage for a risk different from what the insurer had intended. A no-assignment clause guards an insurer against any unforeseen exposure that may result from the unauthorized assignment of a policy before a loss. Insurers provide policies of insurance to those individuals and entities that insurers have determined are acceptable risks. If an insured assigns the policy to a third party without the insurer’s consent, the insured may cause the insurer to bear a risk the insurer never agreed to accept and never would have accepted.
But if there has been an assignment of the right to collect or to enforce the right to proceed under a policy after a loss has occurred, the insurer’s risk is the same because the liability of the insurer becomes fixed at the time of the loss. Thereafter, the insurer’s risk is not increased merely because there has been a change in the identity of the party to whom a claim is to be paid.
Moreover, once the insurer’s liability has become fixed due to a loss, an assignment of rights to collect under an insurance policy is not a transfer of the actual policy but a transfer of the right to a claim of money. It is a transfer of a chose in action as opposed to a transfer of an actual policy.
Id. at *4-5 (citations omitted). The court went on to note:
[T]he fact that some claims may not have been asserted by those allegedly harmed by the [insured’s] actions during a policy period of one of the subject policies does not affect the validity of the assignment. Defendants’ 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.
Id. at *6.
The only limitations on a post-loss assignment are that the assignment must be specific enough to apprise the parties of what is being assigned and that it must not be overbroad. In Givaudan, the court specifically found that:
The assignment is neither so broad nor so non-specific as to render the rights conveyed unidentifiable. The schedule accompanying the assignment identifies the policies that are the subject of the assignment by policy number, insurer, and the dates of the policy period for each policy. It is clear what was assigned . . . .
Because this case involved a post-loss assignment of liability insurance policies, the court’s holding is not surprising. As noted, such assignments have been upheld since the 1950s. What is somewhat surprising is that the trial court concluded that the assignment was not valid, essentially ignoring the case law on the issue.
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