Assignment of Benefits Does Not Violate Anti-Assignment Clause

An Illinois appeals court ruled that an insurer had a duty to defend a successor  of an insured where the insured made an assignment of benefits pursuant to a asset sales agreement. The assignment of benefits had been made without consent of the insured and the insurance policy had contained an anti-assignment clause..

In Illinois Tool Works, Inc. v Commerce and Industry Insurance Company and United States Fire Insurance Company, 2011 Ill. App. LEXIS 1250 (App. Ct. 12/12/11), a landlord had filed a lawsuit against its former tenant, Binks Manufacturing and Illinois Tools Works (ITW)as successor to Binks, for contamination alleged to have been caused by the tenant operations.Binks had leased the property from 1959 to 1998 when it sold its assets to a predecessor of ITW who continued to lease the premises until 2003 As part of the asset purchase, ITW received an assignment of rights to all insurance Binks’ insurance policies.

Defendants Commerce and Industry Insurance Company (C&I) and United States Fire Insurance Company (USF) defended Brinks in the lawsuit filed by the landlord but declined to defend ITW. In 2006, ITW  filed a declaratory judgment action in Illinois state court seeking a ruling that C&I and USF had breached their policies by refusing to defend ITW in the underlying landlord litigation. ITW asserted that it was entitled to a defense because it was a successor of Binks and had been assigned the rights under the policies.

On cross-motions for summary judgment, the trial court ruled in favor of the insurers but the appeals court reversed, holding that an assignment of rights can be made without consent of an insured since such as assignment does not expand the risk to carriers as the assignor cannot grant rights greater than it has under ther policy. The court also said that an assignment of a policy can be made without the insurer’s consent where a loss has occurred. Since in this case, the contamination had occurred prior to ITW’s purchase of the Binks assets, the court held the assignment was valid and the insurers should have provided defense to ITW,