As reported in Law360, SSC secured a key opinion and order from the U.S. District Court for the District of New Jersey in an ongoing matter at the cross-section of arbitration and insurance. On January 29, 2025, the Court denied the motion to compel arbitration filed by certain underwriters of Syndicate No. 2987 of Lloyd’s of London.
As described in a previous post, SSC obtained a $5 million settlement and consent judgment, including an assignment of rights, from the City of Trenton following four years of litigation regarding our client’s civil rights claims. The Griggs settlement followed Griggs v. Bertram, 443 A.2d 163 (N.J. 1982), in which the New Jersey Supreme Court held that a third-party assignee may enforce a settlement or judgment against an insurer if the amount is reasonable and entered into in good faith.
But Lloyd’s argued that it bears no liability for the consent judgment because it did not consent to the assignment from Trenton to our client and cited an anti-assignment clause in the insurance policy. Lloyd’s also sought to force our client to arbitrate the issue of the enforceability of the anti-assignment clause.
SSC responded by filing a federal complaint against Lloyd’s to obtain a declaratory judgment that Lloyd’s indeed is bound by the assignment, that it cannot use the anti-assignment clause of the policy to avoid liability, and that the issue was outside the scope of the policy’s arbitration clause.
In rejecting Lloyd’s motion to compel arbitration and stay the litigation, the Court held:
Although Defendant strenuously challenges the assignment’s validity on the grounds that it did not consent to the assignment, there is no dispute that the underlying insurance Policy itself is valid. Accordingly, the Court finds that there exists a valid arbitration agreement between Trenton and Defendant.
Defendant would have the Court end the inquiry here and proceed to find that the dispute, i.e., the assignment’s validity and whether an invalid assignment precludes coverage, falls within the arbitration provision’s scope and must be resolved by an arbitrator. Plaintiff, however, asks the Court to pause and consider the implications of Defendant’s position. That is, Defendant argues that it is essentially not bound to cover the judgment as entered by the Court because it deems the assignment invalid, but yet somehow relies on the very assignment to convince the Court that it must compel arbitration. Plaintiff argues that the validity of the assignment is a question of “mutual assent” that is an issue for the Court to determine in the first instance. (Opp’n Br. at 15–16) (“the Court cannot be satisfied that the making of the agreement for arbitration . . . is not in issue.”).
The Court agrees with Plaintiff and concludes that to determine whether there is a valid arbitration agreement between Plaintiff and Defendant, the validity of the underlying assignment must be reached. Importantly, the arbitration provision at issue in the Policy is limited in scope and does not contain a general delegation clause, or any language delegating the enforceability of the assignment provision to an arbitrator. See Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 188 (3d Cir. 2010) (“In sum, the [plaintiffs] have failed to adduce clear and unmistakable evidence that the parties intended to arbitrate questions concerning the validity of the arbitration agreement, which is fatal to their argument that the District Court should have referred such a question of arbitrability to the arbitrator.”).
The Court further held that the $5 million settlement and consent judgment did not violate the anti-assignment clause and that the assignment is valid and consistent with New Jersey law, including Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 151 A.3d 576, 585 (N.J. 2017).
Our co-counsel is Jeff Nash of Nash Perez LLC.
Law360’s recent coverage of the case is available here.
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