Corporate Succession and the

Successful Transfer of Insurance Rights

http://delvacca.acc.com

INSURING SUCCESS

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Overview

• Rights Of Successors Under Insurance Policies Issued to Predecessors

• Acquiring Company's Rights To Insurance Under Its Own Policies For Pre-Acquisition Liabilities Caused By Subsidiaries

• The Rights of Multiple, Competing Policyholders

• Drafting Considerations

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Assignment Of Insurance Rights

• Two Basic Considerations

• Was transfer of insurance rights effective?

• By Operation of Law

• By Contract

• Was insurer consent to the transfer required?

• Insurance policies typically contain “Anti-Assignment” clauses providing as follows:

• “Assignment of the interest under this policy shall not bind the company until its consent is endorsed thereon”

• Transfer by operation of law

• Waiver/Estoppel

• Assignment Of Policy Rights After Loss

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Successorship Issues: General Principles• After a merger or acquisition, the insurance assets of a

predecessor generally transfer, along with liabilities, to the

surviving corporation

• Depending on the nature of the transaction and the timing of

the loss, an “Anti-Assignment” clause should not bar the

transfer of insurance assets in connection with a merger or

acquisition

• A successor corporation is generally not entitled to insurance

under its own insurance policies for loss arising out of the

predecessor’s pre-acquisition activities

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Successorship Issues: Hypothetical

• In 1995 Y Corp acquires the assets of X Corp and then merges into Z Corp in 2000

• In 2005, Z Corp is sued by John Doe for injuries caused by exposure to an X Corp product in 1994 and by Jane Doe for injuries caused by exposure to a Y Corp product in 1999

• To which insurance policies should Z Corp look to for a defense and indemnification against the claims asserted by John and Jane Doe?

X Corp

Y Corp

Acquires

Assets of X

Corp

Y Corp Merges

Into Z Corp 1995 2000

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Successorship Issues: Corporate Merger

• General Rule: surviving corporation in a

corporate merger succeeds to all the rights,

benefits and liabilities of the predecessor

corporation, including insurance assets

• No increase in the insurer’s risk

• “Anti-Assignment” clause not enforceable

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Successorship Issues: Stock Purchase

• Generally, the acquisition of another company’s

stock entitles the acquiring company to access

the acquired company’s assets, including

insurance assets

• Simply a change in ownership – no increase in

the insurer’s risk

• Without any increase in the insurer’s risk, “anti-

assignment” clauses are generally unenforceable

in the context of a stock purchase

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Successorship Issues: Asset Acquisition• Most troublesome form of transaction

• Unlike mergers and stock transactions, insurance

assets do not necessarily transfer by operation of

law

• Northern Ins. Co. v. Allied Mut. Ins. Co.

• Henkel Corp. v. Lloyd’s of London

• The transfer of insurance rights typically

governed by the terms Asset Purchase

Agreement

• General Refractories Co. v. Am. Mut. Ins. Co.

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Enforceability of Anti-Assignment Clauses

• Majority Rule:

• For loss that occurs before the transfer, insurance rights

are treated as a chose in action and are generally

assignable notwithstanding an “Anti-Assignment” clause

• Liability need not be reduced to a money judgment; the

occurrence of the injury alone creates an assignable chose in

action

• Egger v. Gulf Ins. Co.

• Minority Rule:

• Chose in action does not arise until a liability is reduced

to a money judgment

• Henkel Corp. v. Lloyd’s of London

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Coverage For After-Acquired Subsidiaries

• General Liability Policies typically define the

“Named Insured” as including affilaiated

subsidiaries “hereafter acquired”

• Generally, however, courts have refused to

extend coverage under an acquiring company’s

policies for subsidiaries acquired after the

expiration of the policy period

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Competition Among Multiple Policyholders

• Arises where, after corporate transaction such as

a spin-off, formerly aligned parties are now

competing for the same insurance assets

• Courts hold generally that insurers may pay

competing policyholders on a first come, first

served basis until available insurance is

exhausted

• A few courts have held that an insurer may not

favor one policyholder over another

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Drafting Considerations

• Whenever liabilities are being acquired, irrespective

of the form of the transaction, careful consideration

should be given to any insurance for those liabilities

• Particular attention should be paid to any long-tail

liabilities (asbestos, products and environmental

liabilities) of the company to be acquired and its

legacy insurance

• Every attempt should be made to acquire any

insurance assets associated with any liabilities being

acquired

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Drafting Considerations: Suggested Language

[Seller] hereby conveys to [Buyer] to the fullest extent

permissible under the law and under the relevant insurance

policies any claim, chose in action, or other right [Seller]

may have to insurance coverage under past and present

insurance policies insuring [Seller] with respect to the

liabilities or losses described above and to the extent such

liabilities and losses are assumed by [Buyer]. Further, in

response to any reasonable request for cooperation, [Seller]

agrees to cooperate with [Buyer] in any attempts by [Buyer]

to pursue such claim, chose in action or right against

[Seller’s] insurers, including, if necessary, bringing suit with

[Buyer] against the insurers in [Seller’s] name but at

[Buyer’s] expense.

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Contact Information

Lee M. Epstein, Esq. Shareholder, Flaster/Greenberg PC

215.279.9390

lee.epstein@flastergreenberg.com

Michael F. Rettig, Esq.Executive Vice President, General Counsel, Avantor Performance

Materials

610.573.2702

michael.rettig@avantormaterials.com

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