NJ Supreme Court Expands Insurer's Liabilities for Environmental Damages
On February 2, 2017, the New Jersey Supreme Court unanimously held in Givaudan Fragrances Corp. v. Travelers Casualty & Surety Co., et al. (2017 WL 429476) that insurers can be held liable for defense and indemnity costs under insurance policies even though the policies was subsequently assigned to a successor entity without the insurers’ consent.
The Court, relying on prior New Jersey decisions, as well as substantial case law around the country, upheld the New Jersey Appellate Division’s ruling that found the insurers responsible for claims involving environmental hazardous discharges at the former Givaudan Corp. manufacturing facility in Clifton, New Jersey. The insured’s underlying claims related to the lawsuits filed by the NJDEP and later EPA against Givaudan Fragrances for the removal of contaminated soil and groundwater at its Clifton, New Jersey property, and in another pollution case, relating to dioxin contamination in the Passaic River in Newark Bay. Environmental damages in these cases are estimated to be in the hundreds of millions of dollars. Both of these claims related to alleged environmental harm occurring during Givaudan Corp.’s ownership. Prior to filing those claims, Givaudan Corp.'s insurance policies were transferred to Givaudan Fragrances, a success to Givaudan Corp.
The defendant insurers were successful in the trial court, which held that the assignment of the policy to Givaudan Fragrances was invalid because it added an additional party to the policy, thereby increasing the insurers’ liability to potential claims. The New Jersey Appellate Court reversed the trial court’s decision.
Critical to the New Jersey Supreme Court’s ruling was the Court’s finding that an insurer’s risk could not be increased by a change in the insured’s identity. The Court observed that the subject policies are occurrence based policies that provide coverage based on liability for an occurrence to which the policy applied. Furthermore, the Court found that a long history of restructuring by the insured and its related entities had no effect on the insurers’ obligations to provide coverage under the policies.
The Court explained that “the risk of exposure that was contractually undertaken by the insurer occurred prior to the assignment, and it occurred due to actions or inactions of the entity that the insurer insured when the loss occurred.” The environmental contamination took place during the relevant policy period. Therefore, the assignment did not alter the insurers’ liability for indemnifying the underlying insured event.
The Court also found that the assignment of the claims to Givaudan Fragrances included assignment of the insurers’ duty to defend those claims. However, the Court did not specifically address the insurers’ argument that the assignment impermissibly multiplied the risk faced by the insurers, because in this case the claimant chose to forego its right to invoke the duty to defend.
Also, in light of the Court’s holding as to the validity of the assignment of the policies, the Court did not need to resolve the issue whether Givaudan Fragrances as an “affiliate” of the insured (Givaudan Corporation), was entitled to have the insurers provide it with coverage for the environmental liabilities.
If you would like further information on the impact of the New Jersey Supreme Court's decision, please contact your Chiesa Shahinian & Giantomasi PC attorney or the authors listed below.
Dennis M. Toft | Chair, Environmental Group | firstname.lastname@example.org | (973) 530-2014
Michael J. Naughton | Member of the Firm | email@example.com | (973) 530-2147
John G. Valeri, Jr. | Member of the Firm | firstname.lastname@example.org | (973) 530-2030