Texas And "No Assignment" Clause

Some of the courts in Texas have found a different way to circumvent the "no-assignment" clause and general principles of contract interpretation.

These courts, beginning with National American Insurance Company v. Jamison Agency, Inc. and Imperial Enterprises, Inc. v. Fireman's Fund Insurance Company, have held that the "no-assignment" clause is ambiguous when viewed in conjunction with the state merger statutes. The need to reach this conclusion, despite the arguably clear and concise language in the no-assignment clause, is explained in the Imperial Enterprises case.

That court was faced with explicit Georgia statutory authority and case law of Texas general liability establishing that an insurance contract, like every other contract, is governed by its terms and conditions, and that general rules concerning the construction of contracts apply. Thus, unambiguous policy terms and conditions had to be enforced as written to fulfill the mutual intent of the parties when entering into the agreement. Georgia also expressly permitted and protected "no-assignment" provisions under Georgia law.

Despite these statutory and common law prohibitions against assignment, the court held that the policies were transferred to the successor corporation via operation of law. The merging predecessor corporation, Carpet Mills, had not taken any direct action to assign the policies to Imperial Enterprises, the successor corporation. The court reasoned that "since the transfer of the policy to Imperial Enterprises occurred by operation of law rather than through a personal assignment by Carpet Mills, we are unable to conclude that the no assignment provision unambiguously and unquestionably applied to this transfer."

The Imperial Enterprise court's approach of finding ambiguity in the "no-assignment" clause when construed with state merger statutes was recently reaffirmed in the district court's opinion in Maryland Casualty Company v. W.R. Grace and Company. Interestingly enough, the court diverged from prior decisions and recognized that assignment would increase the risk for the insurer. However, in Maryland Casualty, the court used its determination of an ambiguity to overcome what would otherwise have been a successful argument that the increase in the risk was precisely the kind of danger that the no-assignment clause was intended to protect against. The implications of these decisions and their reasoning take on greater import in light of CERCLA, which is discussed next.

The previous case law discussion demonstrates the lack of concern by some courts for which entity was originally issued coverage. One could easily conclude that these courts were only interested in reaching a decision that would maximize the insurance available to cover the underlying loss. When this cavalier approach is combined with the strict successor liability scheme of CERCLA, the potential for insurers being confronted with coverage claims by many different entities increases; so too does the potential for increased indemnity payments. The importance of the timing of the occurrence, the issuance of the policy, and the passage of CERCLA are demonstrated in Upjohn Company v. Aetna Casualty and Surety Company. In that case, Upjohn sought coverage from several insurers, including General Accident Insurance Company of America, for CERCLA damages at several sites. General Accident had issued CGL coverage to Upjohn from 1947 to 1956. Subsequent to the expiration of these policies, Upjohn acquired assets of other entities which conducted polluting activity during General Accident's policy period. Upjohn argued that nothing in the language of the policy explicitly required that the damage be caused by Upjohn or occurs on property with which, at the time of the occurrence, Upjohn had some sort of legal or factual connection. The district court found that Upjohn was attempting to push the edge of the coverage envelope too far.