Historically, the Ninth Circuit has not favored anti-assignment clauses. See, e.g., Northern Ins. Co. of New York v. Allied Mut. Ins. Co., 955 F.2d 1353 (9th Cir. 1992)(benefits of policy transfer by operation of law to successor corporation despite anti-assignment provision). Applying Oregon law, the Ninth Circuit recently continued its pattern, determining the anti-assignment clause in Alexander Mfg., Inc. v. Illinois Union Ins. Co., No. 07-35812 (9th Cir. March 25, 2009) [here] was ambiguous.
Plaintiff was an employee stock ownership plan and the sole shareholder of Alexander Manufacturing, Inc. (AMI). Plaintiff sued three of its former fiduciaries, alleging breach of fiduciary duty under ERISA. These same individual were former directors and officers of AMI.
Plaintiff's policy with Illinois Union included coverage for "Directors & Officers and Company" and fiduciary liability. The policy had an anti-assignment clause, which stated, "[a]ssignment of interest under the Policy shall not bind Insurer unless their consent is endorsed hereon." In the underlying suit, the fiduciaries settled for $10,000 each and assigned their rights under the policy to Plaintiff. Illinois Union never consented. When Illinois Union failed to honor the assignment, Plaintiff sued. The district court granted summary judgment to Illinois Union and dismissed the case.
The Ninth Circuit reversed. Under Oregon law, the policy's anti-assignment clause applied only to pre-loss assignments. Moreover, the anti-assignment clause was ambiguous because there were two plausible interpretations of the word "interest." First, "interest" could be interpreted to not encompass post-loss assignments. "Interest" could refer to a financial stake in the policy, as distinct from a financial stake in a post-loss cause of action. In that sense, no "interest" in the policy could be assigned because the insurer accepts only the known risk of a particular insured. Under a second interpretation, however, "interest" could apply to post-loss as well as pre-loss assignments. One could plausibly interpret "interest" to encompass all rights, including post-loss assignments. Because two interpretations of the clause were reasonable, it was construed against Illinois Union.
It is unlikely the Hawai`i Supreme Court would determine the anti-assignment clause to be ambiguous. In Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 117 Haw. 357, 183 P.3d 734(Haw. 2007) [reviewed here], the Court held the policy did not transfer to a corporate successor because of the anti-assignment provision.
Carriers, do not despair. Our next post will review a case in which the Court enforced the anti-assignment provision.
