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Owen v. CNA Insurance/Continental Casualty Co.

May 11, 2000


Before Judges Stern, Kestin and Wefing.

The opinion of the court was delivered by: Stern, P.J.A.D.


Argued January 20, 2000

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.

Defendant insurance carrier appeals from the grant of summary judgment to plaintiff in this declaratory judgment action seeking to require defendant to honor her assignment of the proceeds of a structured settlement. The settlement agreement provided:

The claimant shall have the right to change the Contingent Payee at any time during the term of this Agreement by filing written notice with the Company, such change to be effective when accepted by the Company in writing as of the date such notice was signed, except as to any payments made by the Company before such change was accepted.

To the extent provided by law, the aforesaid deferred lump sum payments shall not be subject to assignment, transfer, commutation or encumbrance, except as provided herein.

This appeal requires us to consider the extent to which the law may prohibit the assignment. There is a dispute as to whether plaintiff assigned merely the $20,636.48 payment due in December 2001 or also the $30,321.76 payment due in December 2006. However, that issue does not affect the legal question on which summary judgment was granted because the parties agree the same principle would apply if only the payment due in 2001 was assigned. *fn1

On this appeal defendant argues that Article 9 of the Uniform Commercial Code (U.C.C.) does not prohibit the enforcement of the non- assignment clause in the structured settlement, as claimed by plaintiff; that the trial court failed to consider the effect of Article 2 of the U.C.C.; and that the trial court erred in its analysis of common law and public policy considerations.


On September 15, 1983, plaintiff Carol Owen (then Carol Hydo) of Spotswood, New Jersey, signed a release in favor of parties she had sued in a personal injury case arising out of a slip and fall at a Bamberger's store in East Brunswick, New Jersey. Incident thereto, plaintiff entered into a settlement agreement with defendant, the tortfeasors' insurer. Under the terms of the settlement agreement, plaintiff received an initial lump sum of $10,000, attorney's fees of $15,000 and five deferred lump sum payments totaling $81,067.24. The payments were to be made in December 1986, 1991, 1996, 2001 and 2006. In the structured settlement agreement, quoted above, plaintiff agreed that she would not assign or otherwise encumber the deferred lump sum payments.

On December 22, 1997, plaintiff entered into a "Purchase and Sale Agreement" with Metropolitan Mortgage and Securities Company under which she agreed to "sell, convey, transfer and assign" to Metropolitan all her "rights and benefits" under the settlement agreement with defendant for $8,520.20. "Benefits" included "[a]ll of the rights, titles, estates, interests, powers, privileges, and benefits (of every description whatsoever) of the plaintiff . . . in, to or under . . . the Settlement Agreement

. . . (including, without limitation, the entire Remaining Balance and excluding therefrom only the Unpurchased Benefits, if any) . . . ." At the time of the sale plaintiff was entitled to receive two more payments under the structured settlement, one for $20,636.48 in December 2001, and one for $30,321.76 in December 2006.

As a result of the agreement with Metropolitan, plaintiff signed an irrevocable special power of attorney, "exhibit G" to the agreement, directing the attorney-in-fact designated by Metropolitan "[t]o accept, sign, endorse . . . in my name and on my behalf, all checks . . . payable to my order, . . . and received pursuant to [the settlement agreement with defendant]." (emphasis added.) Plaintiff also agreed to defend, indemnify and hold Metropolitan harmless from any claim that her benefits were not assignable, and to "order and conduct [her] affairs as to prevent the assertion of any claim that the Benefits were not assignable."

Incident to the agreement, in January 1998 plaintiff sent defendant a notarized letter directing it to send "all future payments and other mail" to an address in Syracuse, New York. Defendant responded by sending her a copy of the settlement agreement and noting that the deferred lump sum payments were "not subject to assignment, transfer, commutation or encumbrance." After plaintiff's attorney wrote several letters to defendant seeking confirmation that defendant had changed the address, defendant requested confirmation that plaintiff resided at the Syracuse address. Plaintiff's counsel responded by enclosing a letter of complaint to the Department of Insurance and indicating that she "will file the complaint" in the absence of "immediate[] written acknowledgment" that defendant changed plaintiff's mailing address. Defendant advised plaintiff's counsel that plaintiff could not assign her payments and that defendant always sends the payments "to the claimant's actual address."

This action was thereafter commenced. In her complaint plaintiff sought to compel defendant to acknowledge the address change. She also sought a declaration that the non-assignment clause in the settlement agreement was void and unenforceable, thereby permitting her assignment to Metropolitan.

In response to plaintiff's motion for summary judgment, defendant presented an affidavit of Susan Goulet, defendant's Vice President. In the affidavit, Ms. Goulet explained why defendant requires that all structured settlements contain a provision prohibiting an assignment. Defendant explained that it is concerned about the "risk of being required to make double payment" because so many tort plaintiffs "are of diminished physical or mental capacity" due to their injuries, and their beneficiaries and heirs attack the assignments based on the diminished capacity. Defendant said it is also concerned about the potential of litigation resulting from competing claims because tort plaintiffs have made multiple assignments of the same interest and have executed documents assigning the entire interest in a structured settlement when they intended to assign only a portion thereof. *fn2 Defendant also insists that because the assignment of a structured settlement has tax consequences for the assignor and imposes a tax reporting burden on the carrier, the non-assignment provision assures that defendant "is able to fulfill its [legal] obligations." Moreover, the Goulet affidavit states that defendant incurs administrative expenses in processing an assignment and has been subjected to liens for the amount of "assigned periodic payments on account of a tort plaintiff's failure to make court ordered child support or alimony payments, or due to a tort plaintiff's having past due tax obligations or outstanding judgments."


Defendant suggests that the law of Illinois may apply to this structured settlement because its principal office is located there. But New Jersey follows the governmental interest analysis in deciding choice of law questions, Marinelli v. K-Mart Corp., 318 N.J. Super. 554, 563 (App. Div. 1999), aff'd, 162 N.J. 516 (2000); and there is no choice of law issue to be considered in the absence of a conflict between the law of the respective states, ibid.; Gantes v. Kason Corp., 145 N.J. 478, 484 (1996). *fn3 Because we agree with defendant's major contentions under New Jersey law, there would appear to be no conflict. *fn4 However, even if there were a conflict, we would apply New Jersey law, given the entry of the structured settlement here upon disposition of New Jersey litigation involving injury to a New Jersey resident. See Marinelli, supra, 318 N.J. Super. at 562; Gantes, supra, 145 N.J. at 484.


Plaintiff contends that Article 9 of the U.C.C. addressing secured transactions prohibits the non-assignment provision of her agreement with defendant and renders it void. A provision of Article 9, as adopted in N.J.S.A. 12A:9-318(4), provides:

A term in any contract between an account debtor and an assignor is ineffective if it prohibits assignment of an account or prohibits creation of a security interest in chattel paper or a security interest in a general intangible for money due or to become due or requires the account debtor's consent to the assignment or security interest.

The trial judge agreed with plaintiff's contention.

N.J.S.A. 12A:9-104(k) provides that Article 9 does not apply "[t]o a transfer in whole or in part of any claim arising out of tort." The trial court, in a written opinion, found that "[t]he structured settlement agreement was structured and must be viewed as a contract in all respects, inasmuch as it deals with the disposition of proceeds that result from a tort claim, not from the tort claim itself." The judge cited Berkowitz v. Haigood, 256 N.J. Super. 342, 346 (Law Div. 1992). The trial judge further noted that under Chelsea Wheeler Coal Co. v. Marvin, 134 N.J. Eq. 432, 437 (E & A 1944), a prohibition of assignment "may be disregarded where it is not the main purpose of the contract." The judge therefore concluded "that as a consenting adult, Plaintiff has every right ...

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