Owen v. CNA Insurance/Continental Casualty Company
771 A.2d 1208 (2001)
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Rule of Law:
A contractual non-assignment clause is unenforceable unless the language specifically states that any attempted assignment is "void" or "invalid" or that the assignee acquires no rights. An assignment will not be invalidated simply because it imposes a minor, non-material increase in the burden or risk on the obligor.
Facts:
- In 1983, Carol Owen settled a personal injury lawsuit against a tortfeasor insured by Continental Casualty Corporation (Continental).
- The settlement agreement provided for several deferred periodic payments and contained a clause stating the payments "shall not be subject to assignment, transfer, commutation, or encumbrance."
- In 1997, facing mounting medical bills from an unrelated illness, Owen entered into an agreement to sell her rights to the remaining future payments to Metropolitan Mortgage and Securities Company (Metropolitan) for a discounted lump sum.
- Owen notified Continental of the assignment and directed it to send future payments to Metropolitan's address.
- Continental refused to honor the assignment, citing the non-assignment clause in the original settlement agreement.
Procedural Posture:
- Carol Owen filed a complaint in the New Jersey Law Division (a trial court) seeking a declaratory judgment that the non-assignment clause was void.
- The Law Division granted summary judgment in favor of Owen.
- Continental, as the appellant, appealed the decision to the New Jersey Appellate Division (an intermediate appellate court).
- The Appellate Division reversed the trial court's judgment and remanded the case for further fact-finding.
- One judge on the Appellate Division panel dissented from the majority's opinion.
- Owen, as the appellant, appealed as of right to the Supreme Court of New Jersey (the state's highest court) based on the dissent in the court below.
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Issue:
Is a non-assignment clause in a structured settlement agreement enforceable when it does not contain express language rendering a non-conforming assignment void and the assignment does not materially increase the burden or risk on the obligor?
Opinions:
Majority - Stein, J.
No, a non-assignment clause in a structured settlement agreement is not enforceable under these circumstances. The court adopted the modern rule articulated in the Restatement (Second) of Contracts, which distinguishes between the right to assign and the power to assign. For a contract to eliminate the power to assign, its non-assignment clause must contain express language stating that any non-conforming assignment is "void" or "invalid." The language in Owen's agreement—that payments "shall not be subject to assignment"—was merely a covenant not to assign, the breach of which makes the assignment valid, though it could potentially expose the assignor to a claim for damages. Furthermore, under Restatement § 317, an assignment can be invalidated if it materially increases the burden or risk on the obligor (Continental). The court found that the potential for a minor, one-time-per-payment tax reporting obligation did not constitute a material increase in burden or risk, especially since the original settlement was not structured to take advantage of specific tax benefits that could be jeopardized.
Analysis:
This decision aligns New Jersey law with the modern majority view favoring the free assignability of contract rights. It establishes a clear drafting requirement for parties who wish to create an effective anti-assignment clause, mandating express language like "void" or "invalid" to strip a party of the power to assign. The ruling limits the ability of obligors to block assignments based on minor administrative burdens, thereby providing greater liquidity and certainty for beneficiaries of structured settlements and other long-term payment contracts. This precedent makes it significantly harder to enforce boilerplate anti-assignment clauses that lack specific language voiding the transfer.
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