New Jersey Superior Court Sides with Insurers in Dispute Concerning Assignability of Policies
On October 3, 2014, the Honorable Robert C. Wilson of the Superior Court of Bergen County, New Jersey, sided with Great American Insurance Company of New York, the American Insurance Company, Fireman’s Fund Insurance Company, and St. Paul Fire & Marine Insurance Company (“Insurers”) in a dispute involving the assignability of their insurance policies. In 2000, Plaintiff Haskell Property LLC, bought certain assets from bankrupt General Ceramics, Inc. (GCI), including real property located at 16 First Avenue, Haskell, New Jersey, and all of GCI’s rights under any agreements relating to the site. The Insurers were on notice of claims for environmental contamination at the site prior to the bankruptcy sale.
In 2013, Haskell sued the Insurers for cleanup costs relating to the site, alleging that it was the assignee of GCI’s insurance policies providing coverage for such environmental liabilities and that the Insurers had breached the policies by denying coverage. Finding that Haskell had failed to state a claim, Judge Wilson dismissed Haskell’s complaint against the Insurers with prejudice. Although Judge Wilson agreed with Haskell that the Bankruptcy Court-approved asset purchase agreement evidenced intent to assign the policies, the policies were not property of GCI’s bankruptcy estate and, as such, the purported assignment was ineffective.
Even if the policies had been property of the estate, Judge Wilson noted that, under long-standing New Jersey precedent, if an insurance policy contains an express anti-assignment clause, a purported assignment without the insurer’s consent is void. Haskell’s complaint failed to allege any consent by Insurers and, therefore, was insufficient as a matter of law. Moreover, Judge Wilson noted that New Jersey law does not recognize the assignment of an inchoate claim (as opposed to a mature right to payment) under an insurance policy.
Judge Wilson also held that the invalidity of the assignment defeated Haskell’s claim for breach of the implied covenant of good faith and fair dealing and that Haskell’s breach of assignment claim was duplicative of its unsustainable breach of contract claim.
The Haskell decision is particularly significant in light of the Third Circuit’s decision in In re Federal-Mogul Global Inc., 684 F.3d 355 (3d Cir. 2012), in which the Third Circuit found that Section 541 of the Bankruptcy Code, which broadly defines property of the estate, expressly preempted contractual provisions – such as insurance policies’ anti-assignment clauses – that purport to limit or restrict a debtor’s right to transfer its interest during its bankruptcy. Although it does not expressly discuss Section 541 or any other provision of the Bankruptcy Code, Judge Wilson’s decision was premised in part on the notion that GCI’s rights under the policies were too inchoate under New Jersey law to constitute property of its bankruptcy estate.
Notably, the purported assignment in Haskell was to a third-party purchaser pursuant Section 363 sale transaction, whereas the purported assignment in Federal-Mogul was to a Section 524(g) trust pursuant to a plan of reorganization. Accordingly, in Federal-Mogul, the debtor had the additional argument that Section 1123 of the Bankruptcy Code expressly allows a plan to provide adequate means for its implementation, including by transferring property of the estate. Read together, the two decisions suggest that insurers may be able to distinguish the unfavorable result in Federal-Mogul if the right to payment under a policy is not yet mature.
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