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.

EPA Announces $1.7 Billion Cleanup Plan for Lower Passaic River

On April 10, the U.S. Environmental Protection Agency announced its most expensive cleanup plan ever.  The remedy selected in EPA’s Focused Feasibility Study (FFS) for the lower 8 miles of the Passaic River (Newark, Harrison and Kearny, New Jersey) will cost approximately $1.7 billion to remediate 9.7 million cubic yards of highly contaminated sediments.

ETT BLOG_Passaic RiverBank-to-bank dredging will remove 4.3 million cubic yards and will capture approximately 18 pounds of dioxin, more than 35,000 pounds of mercury, more than 15,000 pounds of PCBs and nearly 2,000 pounds of DDT. The remaining 5.4 million cubic yards will be left at the river bottom but will be covered by an engineered cap (sand and stone) to prevent the contaminants from becoming part of the food chain.  The dredged sediment will be dewatered locally and then transported by rail for out-of-state disposal.

EPA recognizes that some of the contamination came from companies that are bankrupt or defunct yet expects between 100-200 companies that remain viable to perform the work.  At the estimated cleanup cost of $1.7 billion, the proposed work may force many companies to seek bankruptcy if de minimis, de micromis or “inability to pay” settlements can’t be reached.

Public meetings will be held in May and June to present the cleanup proposal and the other options considered.  EPA also encourages the public to submit comments on the cleanup options by June 20, 2014.  For more information or for a copy of the FFS, click here.

Image courtesy of Flickr by Rich Mitchell