Consent to Assignment Condition in Policies Upheld
November, 2009
In a recent victory after a many year battle over whether coverage is owed to a successor or assignee, the trial court granted the insurer's Motion for Judgment on the Pleadings, finding that by operation of law, there was no valid assignment that could trump the policies' consent to assignment condition. Illinois Tool Works v. Commercial & Industry Ins. Co. No. 06 CH 09619, Circuit Court of Cook Cty., Illinois, Chancery Division.
Facts
The coverage action derives from an underlying environmental contamination suit in Colorado filed by a property owner against its prior tenant, and more recent tenant. The named insured operated a paint manufacturing facility as a tenant for forty years. In 1998, it sold its assets to Illinois Tool Works(ITW). After the asset sale was completed, ITW assumed the lease and conducted its own painting operations on the premises. When both the prior tenant and purchaser were sued by the property owner for environmental contamination to the property, the insurers defended the named insured under a reservation of rights but declined coverage to ITW as purchaser. ITW alleged that the purchase agreement assigned it the benefits of the policies that were issued in the 1970s and 1980s. Therefore, the insurers acted as volunteers when they defended the named insured instead of the purchaser. Each of the insurance policies contained a "Consent to Assignment" condition.
Analysis
The coverage issue then turned on whether coverage was owed to the purchaser as a successor by operation of law, or by assignment, or both. After finding that ITW conceded it was not a successor, the court then analyzed and applied Illinois assignment law. Notably, Illinois does not follow the product-line successor theory. Therefore, to secure a valid assignment certain criteria must be present before an assignment can trump a policies' Consent to Assignment condition.
Illinois law distinguishes between assignments of insurance policies before a loss and assignments after a loss because before a loss involves the transfer of a contractual relationship. Assignment after a loss is merely the transfer of a right to a money claim which is not similarly prohibited. In attempting to comport with this demarcation, ITW asserted that an assignable chose in action, or right to a money claim, is when the environmental contamination occurred. Looking to the recent Indiana Supreme Court decision which rejected that argument in Travelers v. United States Fire, 805 N.E.2d 1172 (Ind. 2008), the Illinois trial court articulated that a claim is only assignable when the insured can seek coverage from the insurer. An assignment is the transfer of a right to a "money claim" asserted after a loss has taken place where "all that remains to be done is to pay the amount due."
Here, where the environmental suit was not filed until 2003, there could not have been a valid assignment at the time of the sale in 1998 without the consent of the insurers.
Ilene M. Korey prepared and argued the Motion filed by Commerce & Industry Insurance Company.
LEARNING POINT:
Under Illinois law, the consent to assignment conditions in a policy will be upheld unless:
1) The subject of an assignment must be a transfer of some identifiable property;
2) The subject of the assignment must be reduced to a claim where all that remains is to pay the money;
3) There cannot be an increase in risk to the insurer providing coverage to the assignee.
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