Anti-Assignment Provision Does Not Prohibit Post-Loss Assignment That Merely Transfers Right to Monetary Claim

07.03.23

On May 24, 2023, the Wisconsin Supreme Court issued an opinion per curiam affirming the court of appeals ruling that an anti-assignment clause does not prohibit a post-loss assignment of insurance rights.

Case Background

In Pepsi-Cola Metropolitan Bottling Co., Inc. v. Employers Ins. Co. of Wausau, 2023 WI 42; 990 N.W.2d 267 (Wis. May 24, 2023), Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi-Cola”), as the alleged assignee of rights under several liability insurance policies issued to two foundries, brought an action for declaratory relief against its insurer, Employers Insurance Company of Wausau (“Wausau”), for asbestos-exposure claims asserted by a mesothelioma claimant arising from pump products that had been manufactured by its two assignor foundries.

The liability policies issued to the assignor foundries were in effect during the period of the claimant’s alleged exposure to asbestos from 1963 to 1971. The foundries then went through a series of transfers that included the purported assignment of the right to insurance to Pepsi-Cola. However, the policies each contained an anti-assignment provision which prohibited any assignment without the written consent of Wausau:

The trial court rejected Pepsi-Cola’s claims for coverage of the asbestos bodily injury claims under the liability policies and granted summary judgment to Wausau. In doing so, the trial court relied upon Red Arrow Products Co., Inc. v. Employers Ins. Of Wausau, 233 Wis. 2d 114; 607 N.W.2d 294 (Wis. Ct. App. 2000) in which the court of appeals had previously stated that the anti-assignment provision in Wausau’s policies “makes clear that without Wausau’s permission, no assignee or transferee has any rights to any benefits under the Wausau policies.” Id. at 299.

On appeal, the court of appeals (2022 WI App 45; 979 N.W.2d 627) distinguished this case from Red Arrow on the basis that Red Arrow did not involve an examination of the enforceability of an anti-assignment provision. Rather, the parties in Red Arrow agreed that there had been no transfer of the recovery rights under the insurance policies and the only issue before the court of appeals in that case was whether the successor was entitled to coverage by operation of law. Accordingly, the court of appeals disagreed with the trial court’s application of Red Arrow because the statements about the anti-assignment provision in that case were “irrelevant” to the decision.

The court of appeals reversed the trial court’s grant of summary judgment in favor of Wausau and followed the majority rule that an anti-assignment provision in a liability policy only applies to an assignment before loss, and does not prevent an assignment after loss. The court of appeals reasoned that this application is supported by the fact that, by its own terms, the anti-assignment provision prohibits the assignment of the policy, as distinguished from an assignment of a claim arising under the policy. An assignment before loss, the court noted, involves a transfer of a contractual relationship, whereas an assignment after loss is merely the transfer of a claim for money that does not increase exposure or otherwise alter the contractual rights of the parties.

Ruling

On appeal before the Wisconsin Supreme Court, Wausau continued to rely upon Red Arrow and argued that the anti-assignment clause in its liability policies precludes indemnity coverage for bodily injuries sustained during the coverage period for the insured corporations because the right to insurance was assigned to Pepsi-Cola without Wausau's consent. In its per curiam opinion from only five of the Supreme Court justices in which no three representing a majority could reach an agreement, the Wisconsin Supreme Court affirmed the decision of the court of appeals (as well as several Wisconsin cases decided in the late 1800s and 1900s) and held that an anti-assignment clause that prohibits an assignment after a loss has occurred is generally regarded as against public policy and unenforceable. In doing so, the per curiam opinion noted that the foundries had already paid premiums for the policies to protect against claimed loss and an assignment of the policies after the loss has occurred does not increase the insurer’s coverage risks because the alleged occurrences had already taken place. The Wisconsin Supreme Court reasoned that, even though the loss during the policy periods may not have been known for many years, there was no dispute that the loss was alleged to have occurred during the policy periods and, as a result, the right to make claims under the policies was effectively assigned post-loss to Pepsi-Cola as the successor-in-interest.

Takeaway

In addition to the court of appeals’ minimization of the application of Red Arrow, the biggest takeaway from Pepsi-Cola Metropolitan Bottling Co., Inc. v. Employers Ins. Co. of Wausau is that, following the majority view, courts in Wisconsin are unlikely to strictly construe an anti-assignment provision without context or without examining the underlying impact that the assignment may have upon the contractual rights of the parties. In particular, the application of an anti-assignment provision in these cases is dependent upon, in part, whether the assignment took place before or after the loss is alleged to have occurred because these courts view an assignment before loss as involving a transfer of a contractual relationship, as opposed to an assignment after loss that is merely viewed as the transfer of a claim for money based upon rights that are already established.

If you have any questions about this case or what it means for future claims of coverage under your insurance policies, please contact Nick Daly or another member of our Insurance Coverage group.