| M&A, Bankruptcy, and Insurance (Part 1) | |||
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Insurance industry response U. S. courts have generally held that a corporation deemed liable for a predecessor's products or pollution is entitled to coverage under the predecessor's applicable insurance policies. It may therefore be appropriate to have the acquired corporation expressly assign its coverage to the purchaser. That is, of course, if they are named. As in the paper shredder example in the previous lesson, lawyers do not always name all parties. So where do all these parties go to pay for defense and/or damages? Can the selling party "sell" their insurance to the acquiring company? Most policies contain a "no assignment" clause. California Supreme Court ruled in 2003 on this issue, in Henkel Corp. v. Hartford Accident & Indemnity Co. The insurance policy language was upheld in favor of the insurance company. When a corporation acquired a business' product line and assumed its liabilities, the acquiring corporation did not also acquire the benefits of policies issued by an insurer to that business, due to absence of the consent of the insurer. No assignment clause Here is a sample of typical language in an insurance policy. "F. Transfer Of Your Rights And Duties Under This Policy Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured. If you die, your rights and duties will be transferred to your legal representative but only while acting within the scope of duties as your legal representative. Until your legal representative is appointed, anyone having proper temporary custody of your property will have your rights and duties but only with respect to that property." Past insurance policies Given the high value of old insurance policies, particularity in the areas of pollution, construction defect litigation and products liability, prior insurance can be a great asset. Assessing the insurance coverage is a critical part of the due diligence for any prospective purchase or merger. Sure, as long as the injury occurs in the older policy timeframe. In the shredder example, the old policies were of no value, as the injury took place in current time, as opposed to past time. In some cases the injury or damage goes on for years. It is important to tell your clients to keep their liability policies as well as their employee dishonesty policies due to the occurrence language and long-term tail of exposures. The Employee Dishonesty policy has language that says the current policy will pay, but only if covered in a policy in effect at the time the "loss" occurred (or occurs, since the loss can take place over a long period of time). The loss had to have been covered in the old policy as well as the current and there must be no gap in the coverages. For more on employee dishonesty and other issues, let's go to the next lesson. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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