Commentary and analysis on the
law of insurance coverage
Can You Assign Your Insurance Policy to Someone Else? No, but…
Author: Carl A. Salisbury
At least in theory, and mostly in practice as well, insurance companies decide whether to underwrite a certain risk by studying the relevant information about a policyholder and figuring out whether the risk is sufficiently remote and manageable that it makes economic sense to promise to insure against the risk in return for a premium. When an insurer sells, say, a commercial liability policy to a company, the insurer’s underwriting department is supposed to gather information about the company’s products and services, study the company’s loss history, find out about the risks that the products or services pose to the consuming public, and conduct an actuarial study of the likelihood that covered claims will exceed the amount of premium the carrier will collect in return for the policy. I have seen a great many underwriting files that carriers have produced in litigation and, very often, the underwriting departments of insurance companies do a creditable job learning about an insured’s business before deciding to write coverage. Having spent all that time and money studying a particular insured, the carrier does not want the insured to assign the policy to some other company or entity so that the carrier will ultimately have to cover different — and perhaps greater — risks that haven’t yet been studied and underwritten. For that reason, commercial general liability policies contain anti-assignment clauses that prohibit signing the policy over to another entity without the carrier’s written consent. But here’s a scenario that comes up frequently in lawsuits.
John walks into Joe’s Bar and Grill and encounters Frank, who has been over-served. Angry words escalate into an altercation Frank punches John, who ends up in the hospital with a broken jaw. John sues everyone, including Joe’s Bar and Grill. Joe’s carrier denies coverage for John’s suit on the basis of some exclusion in the policy — perhaps an exclusion for injury or damage caused intentionally. Joe’s settles with John by agreeing that the injury is worth $100,000 in damages. John agrees, however, that he won’t seek payment from Joe’s directly. instead, John agrees to take an assignment of Joe’s claim against its insurance carrier and will collect the settlement only out of the proceeds of the insurance policy in the event that John wins a coverage action on the claim. Most courts would permit John’s claim to proceed against the carrier despite the anti-assignment clause in the policy and despite the fact that John was never an insured under the policy issued to Joe’s. In New Jersey, these kinds of arrangements are sometimes called “Griggs settlements,” after the 1988 Supreme Court case Griggs v. Bertram.
Once a loss has occurred, the insured’s claim under a policy may be assigned without the carrier’s consent.
Earlier this month, the New Jersey Supreme Court reiterated the rule that a policyholder may, despite an anti-assignment clause in a policy, assign its rights to a claim against the carrier for a loss that occurred before the assignment. The case is Givaudan Fragrances Corp. v. Aetna Casualty & Surety Co. (Get a copy here.) It is an important decision because the facts of the case caused at least the trial court to conclude that the named insured had attempted to assign the insurance policies, themselves, to another insured. In the process of sorting out that confusion, the New Jersey Supreme Court reinforced the policy in New Jersey that a claim for coverage under a liability policy for a loss that has already occurred can be assigned to a non-insured. Here’s what happened.
Givaudan Fragrances Corporation, or “Fragrances,” sought insurance coverage for environmental claims brought by the New Jersey Department of Environmental Protection for alleged pollution that occurred for many years until 1986. Fragrances was an “affiliate” of Givaudan Corporation, which was the named insured in the policies under which Fragrances sought coverage. To make things a bit more complex, a company called Givaudan Roure Flavors Corporation, or “Flavors,” was the corporate successor to Givaudan Corporation. Fragrances filed a complaint in February 2009 seeking a declaration that it was entitled to coverage under the policies.
In February 2010, while the declaratory judgment action was pending, Fragrances told the insurance companies that Flavors (the corporate successor to Givaudan Corp., the named insured) planned to assign its post-loss rights under the insurance policies to Fragrances. The carriers refused to consent to the assignment. Flavors went ahead and executed the assignment to Fragrances, anyway. Then both sides moved for summary judgment. The trial court decided that, since Fragrances was not acquired by Givaudan Corporation during the policy period, it could not be an “affiliated” corporation covered under the policies. The court also decided that the assignment was a violation of the anti-assignment provision of the policies.
The New Jersey Appellate Division reversed. It held that the anti-assignment clauses in the occurrence policies prevented an insured from transferring the policy without the consent of the insurer. But once a loss had occurred, the insured’s claim under a policy may be assigned without the carrier’s consent.
The New Jersey Supreme Court granted the carriers’ petition for certification. The court reviewed several cases from New Jersey that address the issue of assignment of policies vs. assignment of claims. It also surveyed the law in other states on the issue. The well-established majority rule appears to be, as the court observed, that an assignment before loss involves a transfer of a contractual relationship (which is prohibited) while the assignment after loss is the assignment of a right to a money claim (which is permitted). As the court explained, “The majority rule in the United States is that a provision that prohibits the assignment of an insurance policy, or that requires the insurer’s consent to such an assignment, is void as applied to an assignment made after a loss covered by the policy has occurred…. Once the loss has triggered the liability provisions of the insurance policy, an assignment is no longer regarded as a transfer of the actual policy. Instead, it is a transfer of a chose in action under the policy. At this point, the insurer-insured relationship is more analogous to that of a debtor and creditor, with the policy serving as evidence of the amount of debt owed. Moreover, if we permitted an insurer to avoid its contractual obligations by prohibiting all post-loss assignments, we could be granting the insurer a windfall.”
Can a policyholder assign her liability insurance policy to someone else without the consent of the insurer? Absolutely not. Can she assign her claim against the insurance company for an occurrence that has already happened? Yes, she certainly can.
There’s that odd phrase, “chose in action.” It is essentially a right to sue. It is an intangible personal property right recognized and protected by the law. A claim for money damages against someone, as one example, is a chose in action. It is a right that I have under the law and I can give it to you, after which you can sue the party against whom I have the claim as if you were the one with the original claim. In Givaudan, the Supreme Court held as follows: “The Court adopts the policy 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 the right to invoke policy coverage for that loss. The assignment at issue in this case was a post-loss claim assignment and therefore the rule voiding application of anti-assignment clauses to such assignments applies.”
This actually makes good sense. The whole purpose of the anti-assignment clause in a policy is to prevent the insured from doing something that would increase the risks that the carrier agreed to insure against when the contract was entered. Once the insured has suffered a loss, it is a fixed event that cannot be changed and, therefore, cannot increase the risks to the carrier in any way.
One more question remained after the Supreme Court declared its holding in the case, and it is an important one under commercial general liability policies. Was the assignment in this case one that assigned the policies, as the carriers argued, or one that assigned claims that had already occurred?
The Supreme Court answered this question by looking at when the claims against Fragrances allegedly arose. And it found that the claims were for property damage that allegedly occurred during the policy periods of expired policies: “The policy period applicable to each of the disputed policies had concluded at the time of the assignment from Flavors to Fragrances and, therefore, no new policy coverage for not-yet-occurred loss to the assignee was transferred. The latter would have been a transfer of policy requiring insurer consent, but that is not this case. Only rights to coverage for the already-occurred loss event were assigned in this case.”
Can a policyholder assign her liability insurance policy to someone else without the consent of the insurer? Absolutely not. Can she assign her claim against the insurance company for an occurrence that has already happened? Yes, she certainly can.
