New Jersey District Court Enforces Policies’ No-Assignment Provisions

September 30, 2015

A federal district court in New Jersey has ruled that “no-assignment clauses” in insurance policies precluded a company’s claim that it was insured under the policies as the successor-in-interest to an additional insured.

The Case

On July 22, 2005, Shelby Ownbey, an employee of Advantage Buildings & Exteriors, was seriously injured when he fell approximately 15 feet from a scaffold erected at the site where a pharmaceutical manufacturing facility was being constructed in Branchburg, New Jersey (the “Project”). On May 9, 2007, he sued Aker Kvaerner Industrial Constructors and R&R Scaffolding, Ltd, asserting negligence. He later added ImClone Systems, Inc., which owned the site, and other parties as defendants.

Aker provided notice of the Ownbey litigation to Mid-Continent Casualty Co. (“MCC”) and requested coverage under the policy as an additional insured. MCC contended that because Kvaerner Process – not Aker – was listed as an additional insured under the policy, MCC was not required to provide coverage.

For its part, Aker contended that it was an additional insured under the MCC policy as the successor to Kvaerner Process because “the entire Kvaerner Process/Pharma Division business and operations were sold and transferred to Aker wholesale, and [] Aker fully assumed and continued the Kvaerner Process business and operations … under a new corporate flag.” It argued that it had to be deemed an additional insured under the MCC policy because “entities that purchase assets and assume liabilities of another entity are entitled to the benefits of coverage under the seller’s insurance policy for post-sale claims arising out of the assets.”

The Court’s Decision

The court rejected Aker’s arguments.

The court first considered whether the additional insured rights were transferred contractually.   The court stated that even if the insurance rights were transferred under the Asset Sale and Purchase Agreement between Aker and Kvaerner Process, that transfer would still be subject to any restrictions on assignments contained in the MCC insurance policy.

The court observed that while courts have permitted transfer of a vested chose in action under a policy, New Jersey law draws a sharp distinction between the assignability of an insurance policy and the assignability of a right to payment.  Where no right to payment exists, no assignment can exist. The court explained that this conclusion is related to the purpose behind a no-assignment clause, which is to protect the insurer from insuring against a different risk than intended.  As Aker argued for the transfer of a right to insurance, rather than a right to payment already owed, the no assignment clause barred any transfer of insurance rights in the absence of MCC’s consent.

The court next considered if the insurance rights transferred by operation of law.  Aker argued that the Asset Sale and Purchase Agreement constituted a de facto merger or continuation by Aker of the business operations of Kvaerner Process.  But even if Aker was deemed Kvaerner Process’s successor, the court found that the right to recover under the MCC policy did not transfer to Aker because the incident triggering liability – Owenby’s accident – occurred after the de fact merger was completed.  Again, the court explained that courts generally have upheld the effect of no-assignment clauses in liability policies, because the purpose of a no-assignment clause is to protect the insurer from unforeseen risks. As the risk here was not reduced to a fixed claim for payment at the time of the alleged assignment, Aker was not entitled to coverage under the MCC policy.

The case is Ownbey v. Aker Kvaerner Pharmaceuticals Inc., No: 07-2190 (KSH) (D.N.J. Sept. 2, 2015).

Share this article:
  • Robert Tugander





Get legal updates and news delivered to your inbox