Sensory Overload - New Jersey Supreme Court Holds That Anti-Assignment Clause Won’t Prevent a “Flavors” to “Fragrances” Assignment Of Insurance Rights

The New Jersey Supreme Court recently held that an insured’s corporate successor by merger was entitled to assert rights to insurance for environmental claims on the grounds that, once an insured loss occurs, an anti-assignment clause in an occurrence based policy does not bar such an assignment.

The insurers denied coverage to Givaudan Fragrances Corporation (“Fragrances”) for the environmental loss at issue on the grounds that they insured Givaudan Corporation and that any assignment to Fragrances was invalid without the insurers’ consent to assignment, as required for a valid assignment under the language of the insurance policies. Although there were several corporate restructurings and mergers, in relevant part, Fragrances’ affiliate, Givaudan Roure Flavors Corporation (“Flavors”), became the corporate successor-in-interest to the named insured under the policies, Givaudan Corporation. Both Fragrances and Flavors were affiliated companies owned by the same corporate parent, Givaudan Flavors and Fragrances, Inc. Shortly after litigation regarding coverage for the environmental loss was filed in 2009, Flavors notified the insurers that it planned to assign its post-loss rights under the insurance policies to Fragrances. Despite the insurers’ refusal to consent to the assignment, Flavors executed the assignment of rights to Fragrances.

The New Jersey Supreme Court applied the rule 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 based on the insured’s assignment of rights to coverage for that loss. The court noted that this was the “majority rule of the United States” and that such anti-assignment provisions are generally void as applied to an assignment made after a loss covered by the policy has occurred. According to the court, this rule is based on a “deeply rooted” public policy against allowing restraints on alienation of choses in action and recognizes that once a loss occurs, an assignment of rights regarding that loss in no way materially increases the risk to the insurer.

The court held that the assignment at issue was a post-loss claim assignment and therefore the consent-to-assignment or anti-assignment provisions in the policies did not apply to bar the assignment. The court also determined that since there was a valid post-loss claim assignment, the primary insurers had a duty to defend the assignee as holder of that claim. A copy of the court’s February 1, 2017 opinion can be found here.