Aetna must honor a $500 million policy with an anti-assignment clause which states the insured can’t assign a policy to a third party without the insurer’s consent, the Supreme Court of New Jersey has ruled.
The Givaudan Fragrances Corporation is facing liability from the EPA after “discharges of hazardous substance” were found in its manufacturing facility, in the ground and in a nearby lake in Clifton, New Jersey.
The fragrances company has won the right for its insurance policy to cover cleanup fees, legal fees and potential environmental liability it could face from the EPA.
However, Aetna argued in court that it never insured Givaudan Fragrances Corporation and the policy instead belonged to a different sensory-themed company: Givaudan Roure Flavors Corporation.
While flavors and fragrances may be different lines of business or avenues of perception, both the Givaudan Fragrances Corporation (which was not initially named) and the Givaudan Roure Flavors Corporation belong to the same parent company.
As all the claims were made prior to 1986, the court ruled that anti-assignment clauses don’t apply after the claim is made. In other words, the risk and amount hasn’t changed, therefore the claim can be assigned to a third party without the insurer’s consent.
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“Because the loss occurred years prior to the assignment, any assignment to a third party could not have increased the insurance company’s liability,” Robin Cohen, who won the case representing Givaudan Fragrances Corporation, said.
After the loss the only difference assigning a claim makes, with or without the insurer’s consent, is the name on the check.
“You’re assigning the claim, not the policy,” Cohen said, who described the precedent this case set as “very important.”
“Policyholders can be comforted by the notion that they can restructure their company, so long as the loss occurs prior to the assignment.”
Insurance companies will latch onto any clause to try to escape coverage, Cohen argued.
Cohen and the Givaudan Fragrances Corporation initially lost the case but won in an appeals court of seven justices.
Associate Justice of the
New Jersey Supreme Court, Jaynee LaVecchia wrote the 43-page unanimous decision, stating, “In the circumstances of this matter involving lapsed policies, the assignment with respect to each is necessarily a claim assignment. As the panel explained, because the loss claim rights were assigned after expiration of the policy periods.”
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