Corporate
Relationships, Successor Liability
and Insurance Coverage
Gale White
I.
A. Nature and Attributes of a Corporation
The term “corporation” was early
defined by the United States Supreme Court as “an artificial being, invisible,
intangible, and existing only in contemplation of law.”[1] Despite its longevity, this definition has
been frequently approved.[2] A modern corporation may be more fully
described as a legal entity created by and under the authority of state
statutory law,[3]
with an identity or personality separate and distinct from that of its owners,[4]
and which necessarily must act through its agents.[5]
The distinguishing characteristics of a corporation are
that it is an artificial person[6]
capable of suing and being sued, of buying and selling property, of entering
into contracts, and of existing independently of the individuals who compose
it.[7] In business, corporate organization has a
number of advantages. Most notably, the
owners of the corporation are not liable beyond their investment for the
corporation’s debts.[8] This characteristic sharply contrasts with
the two other major forms of business organization: the individual
proprietorship and the partnership.[9] In addition, the corporation is a powerful
device for raising large amounts of business capital by pooling the financial
resources of thousands of individual shareholders -- something that cannot be
done by other forms of business organization.[10] As a result of these advantages, the
corporate form, which became commonly used in the United States as a method of
conducting business in the mid-1800s, today accounts for about eighty-nine
percent of all business receipts.[11]
B. Corporate Formation
The mechanics of creating a corporation vary from state
to state. By statute, Pennsylvania
grants corporate status to qualified persons who comply with statutory
provisions[12]
pertaining to corporate purpose,[13]
corporate name,[14]
articles of incorporation,[15]
and the initial organizational meeting.[16]
Traditionally, corporations are comprised of three
distinct but interrelated parties: shareholders, directors, and officers.[17] Most statutes assume that corporations will
be structured in this fashion, typified as the “statutory scheme.”[18] The shareholders are the owners of the
corporation, and they act principally through two mechanisms: (i) electing and
removing directors,[19]
and (ii) approving or disapproving fundamental corporate changes (e.g.,
mergers).[20] Directors manage the corporation’s business;
that is, they formulate policy and appoint officers to effect that policy.[21] The directors collectively form the board of
directors. The corporation’s officers
administer the day-to-day affairs of the corporation under the supervision of
the board.[22] The law imposes on directors and officers a
duty of care with respect to the corporation’s business.[23] Each director and officer must behave with
that level of care used by a reasonable person in similar circumstances.[24]
D. Parent-Subsidiary Relations
A subsidiary corporation is one in which another
corporation — i.e., the parent — owns at least a majority of the shares, and
thus occupies control.[25] In the case of a wholly-owned subsidiary — as
in the case of shareholder-corporate relations generally — a parent corporation
is usually not liable, beyond the parent’s investment, for the subsidiary
corporation’s debts.[26] Even
when it is a wholly owned subsidiary of another, however, the presumption
exists that a corporation is a separate entity.[27] In general, and absent unusual circumstances,
the property of a parent’s subsidiary is not considered property of the parent
solely by virtue of the parent’s ownership of the subsidiary.[28] Furthermore, separate corporations will not
be regarded as a single entity in order to hold one responsible for the acts or
obligations of the other, even where one has practical control over the other
through stock ownership.[29] However, as is the case in
shareholder-corporate relations,[30] a
court may choose to “pierce the corporate veil” under certain circumstances.[31] Indeed, courts probably have a greater
tendency to pierce the corporate veil in the parent-subsidiary context than in
the individual shareholder situation, since veil-piercing in the
corporate-subsidiary context requires a large business enterprise to pay the
subsidiary’s debts out of its business assets.[32]
A parent that does not own all the stock of the
subsidiary is generally held to have a fiduciary obligation to the subsidiary’s
minority shareholders.[33] The extent of this obligation varies,
however, depending on the context in which the parent corporation exercises its
control.[34] Thus, a parent will be accorded wide latitude
by the courts when establishing the subsidiary’s dividend policy. Its actions
will be more closely scrutinized, however, when the parent seeks to transform
the subsidiary into a wholly-owned subsidiary by buying out the minority
shareholders and merging the subsidiary into the parent.[35]
E. Fundamental Corporate Changes
A corporation has the power to reorganize or restructure
itself through transactions involving “fundamental” corporate changes.[36] Such transactions may require approval of the
board of directors and/or the affirmative vote of a majority of the
shareholders.[37] Although there are myriad ways in which such
fundamental corporate changes can be structured, they are generally
accomplished by one of the following transactions: (1) merger or consolidation;
(2) purchase of another corporation’s
stock; (3) purchase of another corporation’s assets; or (4) dissolution.[38]
1.
Merger and Consolidation
A merger of two corporations
contemplates that one corporation will be absorbed by the other and terminate
existence.[39] In a consolidation, on the other hand, all
the combining corporations are deemed dissolved and emerge as a new corporate
entity.[40] In large part, the mechanics of mergers and
consolidations are governed by the corporate laws of the incorporating states
of the companies which are to be merged or consolidated, and the charters and
by-laws of the constituent corporations.[41]
With both mergers and
consolidations, by automatic operation of law, the surviving corporation
controls all the properties, powers and privileges, as well as the liabilities
of the constituent companies.[42] Thus, a typical statute provides that
following consolidation or merger, the surviving corporation possesses “all the
rights, privileges, powers and franchises as well . . . [as] being subject to
all the restrictions, disabilities and duties of each of such corporations so
merged or consolidated. . . .”[43] Despite such expansive language, courts have
limited the extent to which the surviving corporation “steps into the shoes” of
its predecessors. It has been held, for
example, notwithstanding such statutory language, that contractual obligations
do not pass if the parties by their objective contractual language contemplated
that such obligations would not pass.[44] Contracts, even in the post-merger context,
must be construed in light of generally accepted principles of contract law.[45]
2.
Purchase of Stock
A corporation has the power
to own, acquire, and dispose of stock.[46] There are two ways in which the acquirer
might implement a large-scale stock purchase plan: (i) by a tender offer, in
which the acquirer publicly announces that it will buy all (or perhaps a
majority) of shares offered by the target company’s shareholders; and (ii) by
privately negotiated purchases from some or all of the shareholders.[47] Most regulatory statutes are simply silent
about whether the shareholders of a corporation that makes an acquisition of
stock have a right to approve the transaction.
Therefore, by negative implication, the shareholders have no such right.[48]
Where a corporation is acquired
through the purchase of all of its outstanding stock, the transaction changes
ownership and control of the corporation, but the original corporate entity remains
intact and retains its liabilities. The
mere sale of stock does not, as a general matter, affect the liabilities of
either the buying or selling corporation.[49]
3. Purchase of Assets
The
mechanics of an asset transfer to an acquiring corporation are usually more
complex than a statutory merger or a stock purchase, since asset acquisitions
generally involve bills of sale, deeds, mortgages, consents, assignments and
other documentation relating to the transfer of assets to, and assumptions of
liabilities by, the acquiror.[50] While asset acquisitions hold the advantage
of permitting the parties to pick and choose among the relevant assets and
liabilities, they have certain disadvantages in that these transactions must be
negotiated and are likely to require more third-party and governmental consents
than stock acquisitions.[51] Furthermore, despite the agreement of the
parties, certain liabilities (e.g., environmental, product and labor
liabilities) may be legally inseparable from those assets which are sold.[52]
As with a stock purchase, the shareholders of the
acquiring corporation do not have the right to approve an asset acquisition.[53] However, state corporation statutes almost
always have a special provision covering the sale of “all or substantially all”
of a corporation’s assets. Such
large-scale asset sales nearly always require both board and shareholder
approval by the selling corporation.[54]
4.
Dissolution
The
dissolution of a corporation refers to the termination of its existence.[55] The existence of a corporation cannot be
terminated except by some act of the sovereign power which created it.[56] In Pennsylvania, failure to follow the
prescribed statutory method renders any attempt to dissolve a corporation
ineffectual.[57] Prior to filing articles of dissolution, the
board of directors has full power to wind up and settle the affairs of the
corporation in accord with the procedures relating to pre-dissolution provision
for liabilities. These include providing
notice of wind-up proceedings to each known creditor.[58] Furthermore, it should be noted that
corporate dissolution does not impair obligations made to creditors or others,
since resort may be had to the property of the corporation.[59]
Equally significant is the notion that dissolution of one
or more of the constituent corporations is inherent in the act of merger or
consolidation.[60] A merger of two corporations contemplates
that one will be absorbed by the other and terminate its existence. In a consolidation, all the combining
corporations are deemed to be dissolved and to frame a new corporate identity
that assumes all the properties, powers, and privileges (as well as
liabilities) of the constituent companies.[61]
II.
A successor corporation’s claim for coverage may arise in two different circumstances. These circumstances, and cases discussing same, are best considered by way of hypothetical:
Hypothetical No. 1
Genesis Corporation was acquired by NewWave Inc. in 1980. Thereafter, NewWave sought coverage under policies issued to Genesis (effective from 1950 to 1980) for environmental liabilities resulting from Genesis’ manufacturing activities, conducted from 1950 to 1980. In this circumstance, may NewWave recover under the Genesis policies?
Hypothetical No. 2
Genesis Corporation was acquired by NewWave Inc. in 1980. Thereafter, NewWave seeks coverage under policies issued to NewWave (effective from 1950 to 1980) for environmental liabilities resulting from Genesis’ manufacturing activities, conducted from 1950 to 1980. In this circumstance, may NewWave recover under the NewWave policies?
As discussed below, the answer to Hypothetical No. 1 is
“Maybe.” The answer to Hypothetical No.
2 is “Probably Not.”
B. Coverage Claims Under Policies Issued to the Acquired Corporation
The issue posed by Hypothetical No. 1 can be succinctly stated. When a corporation is acquired or merged into another corporation, does the surviving corporation have rights to insurance under the policies issued to the acquired corporation?
Insureds
have pursued claims for pre-merger activities of successor corporations,
arguing that, when permitted in this context, a claim for coverage provides
insurance benefits that the original insured and the acquiring corporation
expect, without any significant change in the insurance carrier’s duties. Insureds further argue that a contrary approach
would permit the forfeiture of insurance benefits in the event of corporate
reorganization or transfer – an event that otherwise is irrelevant to insurance
carriers. These events would occasion a
windfall to the carriers.
Whether coverage will be afforded in such circumstances
often turns on the interpretation of the “no assignment” clause contained in
many liability insurance policies. “No
assignment” clauses typically require that insurers consent to any assignment
of the insurance policies; anti-assignment clauses generally are enforced
because they ensure that the risk agreed to by the insurer remains unaltered.[62] As one commentator noted, “the purpose of a
no assignment clause is to protect the insurer from increased liability, and
after events giving rise to the insurer’s liability have occurred, the
insurer’s risk cannot be increased by a change in the insured’s identity.”[63]
Courts are split on the question of whether a successor
corporation may seek coverage under policies issued to a predecessor
corporation. Some courts have held that
a prohibition against assignment of the policy does not bar the assignment of
insurance proceeds. An assignment of the
party’s rights under a liability policy after a loss has already occurred
generally is valid, even when the insurance policy contains an anti-assignment
clause.[64] Other courts have validated the “no
assignment” and named insured clauses, and have disallowed recovery by a
successor corporation for liabilities imposed on a predecessor corporation.
Despite the existence of a “no assignment” clause, the
Ninth Circuit Court of Appeals determined that the right to indemnity and a
defense with respect to pre-sale activities of a company acquired through an
asset purchase agreement were transferred, along with the assets of the
company, by operation of law. In Northern Insurance Co. v. Allied Mutual
Insurance Co.,[65]
Brown‑Forman Corporation had purchased California Cooler two years before
the birth of a child allegedly injured from the mother’s consumption of
California Coolers during her pregnancy.
The acquisition was accomplished through an asset purchase agreement.
The question before the Ninth Circuit was whether Brown‑Forman
was entitled to coverage under insurance policies issued to California Cooler
before its acquisition by Brown‑Forman.
The court first discussed “product‑lines successor liability,”
explaining:
California and Washington, like many
other jurisdictions, apply a rule of product‑line successor
liability. Under this theory, a
purchaser of substantially all assets of a firm assumes, with some limitations,
the obligation for product liability claims arising from the selling firm’s
presale activities. Liability is
transferred irrespective of any clauses to the contrary in the asset purchase agreement.[66]
The court concluded that the
right to indemnity arising from California Cooler’s policy transferred together
with the potential liability. The court
reasoned as follows: “This right to indemnity followed the liability rather
than the policy itself. As a result,
even though the parties did not assign [the] policy in the agreement, the right
to indemnity under the policy transferred to Brown‑Forman by operation of
law.”[67]
The court next addressed the question whether the right
to a defense also transferred to Brown‑Forman by operation of law. The court concluded that it did:
We agree . . . that the rationale for
honoring “no assignment” clauses vanishes when liability arises from presale
activity. Insurers take account of the nature of the insured when issuing
a policy. Risk characteristics of the
insured determine whether the insurer will provide coverage, and at what
rate. An assignment could alter
drastically the insurer’s exposure depending on the nature of the new
insured. “No assignment” clauses protect
against any such unforeseen increase in risk.
When the loss occurs before the transfer, however, the characteristics
of the successor are of little importance:
regardless of any transfer the insurer still covers only the risk it
evaluated when it wrote the policy.[68]
The court specifically
rejected the insurer’s argument that the particular characteristics of the
defendant corporation affect the cost of defense, and that substituting a
different defendant for the entity originally insured might substantially alter
defense costs:
The nature of the risk, rather than
the particular characteristics of the defendant, will have the greater effect
on defense costs. The extent and
character of the defense will turn on the nature of the product itself and the
attributes of the firm that manufactured the product. Aspects of the successor firm could affect
the defense, but the shape of the defense will be determined largely by the
characteristics of the risk originally insured.
Admittedly, defense costs could balloon if the successor firm failed to
cooperate in the defense. Inasmuch as
the successor firm was not a party to the original policy, the risk of
noncooperation arguably increases. Yet,
the insurer is protected against this risk because it is freed of its defense
obligation if the successor firm does not fulfill its duty to aid in the
defense.[69]
Other courts have relied on Northern Insurance, allowing coverage for pre-merger activities of
an acquired corporation. In B.S.B. Diversified Co. v. American Motorists
Insurance Co.,[70] a
federal district court relied on the Northern
Insurance case and extended the “product line” exception to a long-tail
liability coverage claim. In 1983,
B.S.B. acquired a parcel of land from Criton Corporation. Groundwater contamination existed at the site
and was subject to remediation under federal and state law. B.S.B. sought coverage under policies issued
to Criton before B.S.B.’s acquisition.
B.S.B. acknowledged it was not a named insured on any of the policies at
issue, nor did it pay any premium for the insurance coverage. However, B.S.B. asserted that it was entitled
to insurance coverage as a matter of law, citing the Northern Insurance court’s rationale that coverage follows
liability, even though not clearly assigned by contract. The district court agreed: “the principle
that insurance follows liability, however, as outlined in Northern Insurance seems equally as valid in this instance as in a
product-liability case.”[71]
At least one court has gone even further, allowing
coverage under policies issued to a successor corporation for the pre-merger
activities of an acquired corporation in National
Union Fire Insurance Co. v. Liberty Mutual Insurance Co.[72] Between 1975 and 1979, Napko manufactured
certain products (the opinion does not specify), and sold them to Myers Drum
Company. In 1979, Napko was acquired by
and merged with The O’Brien Corporation (“O’Brien”). O’Brien continued to manufacture and sell the
products to Myers. Plaintiffs later
brought suit against O’Brien for injuries resulting from products sold by Napko
to Myers before Napko’s merger with O’Brien.
The issue presented by the case concerned whether the
insurance policies purchased by O’Brien provided coverage for the period from
March 31, 1975 to March 31, 1976, prior to O’Brien’s purchase of Napko. The court granted summary judgment in favor
of O’Brien, concluding that the pre-merger activities of Napko were covered by
the O’Brien policy pursuant to the “hereafter constituted” provision in the
named insured definition. In the court’s
opinion, that provision “did indeed anticipate coverage for entities acquired
by, or coming under the control of O’Brien after the inception of the policy.”[73]
In the context of a corporate merger, an issue sometimes
exists about whether a state’s merger statute can prevail over a policy’s
anti-assignment provision. Most merger
statutes provide that all rights, privileges, powers and interests that were
the property of the acquired corporation are transferred to the successor
corporation.[74] Some courts have held that a merger statute
renders a no-assignment clause ineffective.[75]
New Jersey courts also may uphold assignment of insurance
policies despite “no assignment” clauses contained within those policies. In Elat,
Inc. v. Aetna Casualty & Surety Co.,[76]
plaintiff Elat acquired all of the assets of ELTM in 1983. In connection with this acquisition, Elat
leased a manufacturing site that had been leased by ELTM, and carried on
substantially the same manufacturing operation as ELTM for some period of
time. When Elat ceased operations at the
site, it was required to perform site closure cleanup. Thereafter, Elat sought coverage under the
insurance policies issued to ELTM for the environmental damage caused by
ELTM. The trial court granted summary
judgment in favor of the insurers, ruling that the assignment was ineffective
because of the “no assignment” clauses within the policies.
The New Jersey Appellate Division reversed, however,
reasoning that the “no assignment” clause prohibited assignment of the policy,
but not assignment of a claim. The Elat court determined that assignment of
the right to collect, once a loss has occurred, does not alter the parties’
contractual obligations; it merely transfers the right to pursue a money
claim. As the court noted, “[t]he
assignment only changes the identity of the entity enforcing the insurer’s
obligation to insure the same risk.
Thus, the purpose behind the no-assignment clause is not inhibited by
allowing claim, as opposed to policy, assignment.”[77] The court thus permitted Elat to recover
under policies issued to ELTM for liabilities caused by ELTM’s pre-acquisition
conduct.
Some courts, on the other hand, have rejected extension
of the “product line successor rule” to long-tail claims. They also have refused to render
anti-assignment clauses invalid and have recognized the “named insured”
definitions contained within the policies.
In the most recent ruling on this issue, the Wisconsin Court of Appeals
adopted a pro-insurer position. In Red Arrow Products Co. v. Employers
Insurance of Wausau,[78]
the successor corporation (“New Red Arrow”) sought coverage under policies
issued to the predecessor corporation (“Old Red Arrow”) for environmental
liabilities imposed as a result of Old Red Arrow’s pre-merger activities. The insurer (Wausau) denied New Red Arrow’s
claim on grounds that New Red Arrow was not a named insured. It also cited the anti-assignment clause
contained in the policies to preclude assignment of Old Red Arrow’s
claims. The trial court agreed with
Wausau and granted summary judgment in its favor.
The appellate court affirmed, agreeing with Wausau that
New Red Arrow was not a named insured because New Red Arrow had not even come
into existence until after expiration of the policies at issue.[79] Accordingly, New Red Arrow did not bargain
for the policies and did not pay premiums on the policies. The appellate court further noted that the
Wausau policies were never assigned to New Red Arrow and, in any event, the “no
assignment clauses” contained in the Wausau policies barred any such assignment
without the consent of Wausau.[80]
The court also rejected New Red Arrow’s reliance on Northern Insurance to support its
argument that the benefits of the policies transferred by “operation of
law.” The court distinguished the
“product line successor rule” articulated in Northern Insurance.
Specifically, it noted that the rule was intended to protect individuals
who, because they had no contractual relationship with a manufacturer, would
otherwise have no recourse for a product liability claim arising from a company
that (because of a merger) no longer existed.
The Red Arrow court reasoned
that those policy considerations were not at play in this situation; it thus
declined to extend an exception grounded in tort to a contract case.[81]
Similarly, in Quemetco
Inc. v. Pacific Auto Insurance Co.,[82]
the California Court of Appeal gave effect to the “no assignment” clause and declined
to extend the “product line successor rule” to insurance coverage claims. Quemetco sought coverage under policies
issued to its predecessor corporation for pre-merger conduct of the predecessor
corporation which resulted in environmental contamination. The court rejected Quemetco’s contention that
the policies transferred by operation of law when the predecessor company’s
assets were acquired, noting that the insurer never consented to such
assignment. The Quemetco court reasoned:
The purpose of consent provisions is
“to prevent an increase of risk and hazard of loss by a change of ownership
without the knowledge of the insurer.”
In the instant case, both [the predecessor] and [the successor
corporation] assert coverage under respondents’ policies. Thus, unless the consent clauses are
enforced, respondents would be faced with the increased risk of having to
defend two corporations. Therefore, the
consent clauses are valid and enforceable.[83]
The Quemetco
court appeared to criticize the Ninth Circuit’s characterization of California
law in Northern Insurance. However, rather than rejecting Northern Insurance outright, the
majority in Quemetco distinguished
the Northern Insurance determination.
Since CERCLA had not been enacted when Quemetco purchased the assets of the
successor corporation, CERCLA liability could not have “passed as a matter of
law . . . as no such liability existed at that time.”[84]
The court then held that “the product-line successor liability rule should not
be applied to transfer the [Western Lead] insurance policy to [Quemetco] as a
matter of law.”[85]
Returning to the hypothetical, it is unclear whether
NewWave is entitled to coverage under policies issued to Genesis (effective
from 1950 to 1980) for environmental liabilities resulting from Genesis’
manufacturing activities, conducted from 1950 to 1980. As noted, some courts have ignored the
anti-assignment and the named insured clauses, extending coverage to successor
corporations. Other courts, on the other
hand, have observed these policy provisions, refusing to permit recovery of
insurance proceeds in these circumstances.
C. Coverage Claims Under Policies Issued to the Acquiring Corporation
The
second hypothetical poses an equally compelling issue. When a corporation (or its
assets)
is acquired by another corporation, does the surviving corporation have
coverage under
its
own insurance policies for claims asserted against it for the pre-acquisition
operations or
activities
of the acquired corporation?
Numerous courts have addressed a corporation’s entitlement to coverage for the pre-merger activities of the acquired corporation. Most courts addressing this question have held that an insured which acquires another company after the effective date of its CGL insurance policy has no coverage under its policies for liabilities attributable to the acquired company’s operations or activities. These courts have been guided by the plain, ordinary meaning of the insurance policies. Thus, when CGL policies are considered as a whole (interpreting all terms), there is no coverage for after‑acquired liabilities.
This result has obtained when a policyholder seeks
coverage for environmental claims arising out of pre-merger conduct. In Caterpillar,
Inc. v. Aetna Casualty & Surety Co.,[86] Caterpillar, Inc. (“Caterpillar”) purchased
CGL insurance for the years 1952 to 1981 from Insurance Company of North
America (“INA”). In 1962, International
Harvester had acquired the assets of Solar Aircraft Company (“Solar Aircraft”)
and placed these assets within its Solar Turbines International Division. In May of 1981, Caterpillar acquired the
assets of International Harvester’s Solar Turbines International Division and
transferred those assets to a wholly owned subsidiary, Solar Turbines
Incorporated (“STI”). STI owned and
operated a facility in San Diego, California, at which it faced liability for
the remediation of property damage resulting from STI’s (and STI’s
predecessor’s) waste disposal activities.
Similarly, Solar Aircraft had disposed of waste materials at a site in
Escondido, California, at which Caterpillar faced liability for the
investigation and remediation of environmental conditions.
Affirming summary judgment awarded to INA on
Caterpillar’s claim for coverage under the policies issued to Caterpillar from
1952 to 1970, the Illinois appellate court stated: “once the policy period
ends, there is no coverage for subsequent events; logically, then, a subsequent
asset acquisition cannot resuscitate the named insured provision: the policy
period is over and the identity of the named insured during the policy period
is limited to that which existed during the period.”[87] The court rejected Caterpillar’s argument
that the named insured endorsement should enable it to forever expand the named
insured provision in the policies to include “any subsidiary” acquired at any
time:[88]
Although we can conceive in the
abstract that “any” could mean an indefinite number for an indefinite period of
time, as suggested by the plaintiffs, such an interpretation defies common
sense in the context of the underlying bargain in an insurance contract. We do not consider it reasonable to require
an insurance company to be able to assess risk in perpetuity unless it has
clearly stated that it has done so. The
position the plaintiffs advocate would permit them to acquire an indefinite
number of assets without regard to any risk of liability, secure in the
knowledge that the defendant would assume, for no additional premium, those
risks even though they had occurred during a policy period which had long since
lapsed. This is clearly unreasonable.[89]
The Supreme Court of Rhode Island reached the same result
in Textron, Inc. v. Aetna Casualty &
Surety Co.[90] Textron, Inc. had purchased CGL insurance
from 1969 to 1979. Textron acquired BMI
in January, 1981. By this time, BMI’s
operations and activities at a facility located in Lake Park, Florida, had
already caused contamination. After the
acquisition, Textron faced liability at the Lake Park site.
Textron sought coverage under the policies issued between
1969 and 1979. However, the insurer
denied coverage on grounds that BMI was not a named insured under the policies,
and that Textron had neither caused damage at the site nor owned the property
during the policy periods.
The
Rhode Island Superior Court for Providence County granted the insurer’s motion
for summary judgment. On appeal, the
Rhode Island Supreme Court affirmed:
Textron requests that we find that the
scope of Aetna’s insurance coverage is coextensive with Textron’s liability for
the cleanup costs under CERCLA. The
language of the policies does not support that contention. The fundamental principle that we rely on is
that BMI was not related to Textron in any manner during the policies’ periods
under review. Consequently, since BMI
was not a named insured under the insurance agreements, we conclude that
coverage does not exist.[91]
The court rejected Textron’s argument
that because it was liable under CERCLA’s strict liability provisions, coverage
should extend to property damage taking place during the policy period.[92] The Rhode Island Supreme Court held:
Viewing the policies in their entirety
and using the plain, ordinary, and usual meaning of the words, we view the
temporal limitation “during the policy period” as applying to the entire named‑insured
section of the policies. Accordingly,
that includes both Textron and its after‑acquired subsidiaries.
. . .
The named insured verbiage, specifically referring to the named
insured on the declarations page, (that is, Textron), is listed three times in
one sentence.
. . .
[W]hile the policies in question were in effect, Textron had no
relationship with or connection to BMI.
Therefore to hold that Textron is now the “insured” simply because it
had a policy in effect when BMI caused the property damage in question, would
not only be transforming the status of Textron on the basis of the actions of a
then‑unrelated third party but would also be misconstruing the insurance
agreements. We refuse to do either.[93]
Likewise, in UMC/Stamford,
Inc. v. Allianz Underwriters Insurance Co.,[94]
UMC/ Stamford, Inc. (“UMC”) purchased insurance in the mid‑1960s to 1976
from Home Insurance Company and Continental Casualty Company. In 1978, UMC acquired Resistoflex, a
specialty‑pipe manufacturer which operated a facility in New Jersey from
1956 until 1987. Resistoflex used and
disposed of trichloroethylene (“TCE”) at the facility. UMC faced liabilities for cleanup costs at
this site.
UMC made claims for insurance under the mid-1960's to
1976 policies issued to UMC. Home and Continental disclaimed coverage because
UMC had acquired Resistoflex several years after the insurance policies at
issue had expired.[95] The New Jersey Superior Court for Essex
County granted the insurers’ summary judgment motions, holding that the “named
insured” endorsement should be read in conjunction with the policy period
provisions:
In the context of this case, I cannot
interpret the phrase “hereafter constituted” to mean that the insurer would
provide coverage for any business entity plaintiff acquired after the policy
lapsed and well into the future. . . . A
fairer and more reasonable interpretation of the term “hereafter” would be that
the insurer will provide coverage for acquisitions after the policy
commencement date and during the policy period.
Under these circumstances, the insurer would be able to reassess the
insured risk and adjust its premiums accordingly. Adopting plaintiff’s view creates the
potential for significant abuse. For
example, as defendant Home states: “such a construction would permit a company
to acquire an unrelated, liability laden entity, secure in the knowledge that
its insurer would bear the litigation costs.”[96]
This same general rationale has been cited to cover
environmental claims in many other trial court decisions. In Total
Waste Management Corp. v. Commercial Union Insurance Co.,[97]
Total Waste Management (“TWM”) purchased CGL insurance from 1981 to 1986. TWM’s environmental liabilities emanated from
its purchase of certain assets of another company in July, 1988. The federal district court for the District
of New Hampshire held that the policies at issue did not cover after‑acquired
cleanup cost liabilities, observing that “[c]ourts have held an insurer is not
required to provide coverage under its policy with a named insured for the
activities of an entity which the named insured acquired after the expiration
of the policy and which entity committed injurious acts prior to the expiration
of the policy.”[98]
The same result obtained in State of Idaho v. Bunker Hill Co.,[99]
where Gulf Resources & Chemical Corporation’s environmental liabilities
arose from its merger with Bunker Hill Company.
Gulf and Bunker Hill entered into a merger agreement which provided that
“at the effective date of the merger” the surviving corporation assumed the
liabilities of the constituent corporations.
The merger took place on May 23, 1968 (two weeks after the Home policies
lapsed).[100] A certificate of adoption, evidencing
approval of the merger by the shareholders as required by Delaware law, was
dated May 28, 1968. Because the merger
took place after the expiration of the policies, the Bunker Hill court determined that “[t]here is no possibility that
Gulf can be liable prior to May 28, 1968.”[101]
Likewise, in CPC
International, Inc. v. Hartford Accident & Indemnity Co.,[102]
CPC International, Inc. (“CPC”) purchased CGL insurance during the period July
1, 1964 to July 1, 1967 from Hartford Accident & Indemnity Company. CPC’s liability for environmental cleanup
costs arose from its merger with S.B. Penick Corp. in 1968. CPC argued that Hartford’s “named insured”
endorsement, which included CPC and “all companies which are now or may
hereafter be owned or financially controlled by [CPC],” extended to companies
thereafter acquired by the insured. The
New Jersey Superior Court for Bergen County rejected CPC’s argument, ruling
that the after‑acquired liabilities were not covered:
If CPC’s interpretation were correct, a company could purchase a
policy, then acquire a toxic waste nightmare and claim coverage. Such an interpretation would not be fair to
the carrier, who issued the policy based on the facts before it, and could
facilitate fraud by an insured who sees an investment opportunity in acquiring
a contaminated property at a discount price and thereafter shifts the cost of
cleanup to the insurance company who was unable to fairly assess the risk when
the policy was initially issued.[103]
In United
Technologies Corp. v. Liberty Mutual Insurance Co.,[104]
United Technologies Corporation (“UTC”) purchased CGL insurance from Liberty
Mutual Insurance Company (“Liberty”) and various of its excess insurers for
periods prior to UTC’s acquisition of various companies. UTC argued that the several versions of
“named insured” endorsements, including one which provided that named insureds
included “subsidiary, associated, affiliated companies or owned and controlled
companies as now or hereafter constituted and of which prompt notice has been
given to Underwriters,” extended coverage for companies acquired after the
expiration of the policies. The
Massachusetts Superior Court for Suffolk County disagreed:
Generally a policy will not be extended to cover liability of one
who is not a party thereto and not contemplated with the risk. . . . In the normal course of writing insurance,
the underwriters assemble information about the risks from the agents, brokers
and the insured and then decide whether they wish to insure the risk and if so
at what premium. To extend coverage to
pre‑acquisition environmental problems would not be consistent with the
underwriters’ role.[105]
The Wisconsin courts addressed a similar issue in Johnson Controls, Inc. v. Employers
Insurance of Wausau.[106]
Johnson Controls, Inc. (“JCI”) had purchased CGL insurance from 1966 to March,
1978 from several insurers. JCI’s
liabilities for environmental cleanup costs arose when it acquired Globe Union,
Inc. (“Globe”), a manufacturer of automotive batteries, in October of
1978. JCI argued that since the “named
insured” endorsement in the policies contained the “hereafter constituted”
phrase, Globe Union qualified as a named insured. The Circuit Court for Milwaukee County
concluded otherwise:
[W]hen the policies in question were issued to JCI . . . the
underwriting departments of these respective insurers, in order to reasonably
evaluate the risks to be insured, had to know the nature of the insured’s
business in order to decide upon a fair premium. . . . To find here that the [insurers] must respond
by way of defense [and] indemnification for JCI’s liabilities, arising out of
occurrences at Globe Union sites, when such liability antedates any legal or
factual connection between JCI and Globe Union is a “brook too broad for
leaping.” It completely violates the
temporal aspects of the policy and does violence to the reasonable expectation
doctrine.[107]
Finally, in Dana
Corp. v. Hartford Accident & Indemnity Co.,[108]
Dana Corporation (“Dana”) purchased CGL insurance from Fireman’s Fund Insurance
Company (“Fireman’s Fund”) for periods prior to Dana’s acquisition of
liability-laden companies. Dana argued that
the named insured endorsement in the Fireman’s Fund policies, which included
“owned, controlled, affiliated and subsidiary companies and corporations as now
or may hereafter be constituted,” extended liability coverage for those
companies acquired after the expiration of the policies. However, the Indiana Superior Court for
Marion County held that “facilities acquired after a policy expires are not
part of the insured risk under that policy.”[109]
As a result, “there [could] be no coverage for claims arising out of those
facilities.”[110]
As noted in this analysis, courts uniformly have affirmed
the proposition that insurance coverage will not lie for after‑acquired
liabilities for environmental cleanup cost claims. This rule also has been applied when policyholders
seek coverage for after‑acquired liabilities in connection with long-tail
bodily injury claims.
In Armstrong World
Industries, Inc. v. Aetna Casualty & Surety Co.,[111]
GAF Corporation (“GAF”) purchased CGL insurance from May 1, 1961 to May 1,
1967. During this time period, GAF did
not manufacture asbestos products. After
the expiration of the policies, GAF merged with Ruberoid Co., which had
manufactured asbestos building materials since the 1880’s. After the merger, Ruberoid ceased to
exist. All of its assets were
transferred to GAF, and GAF assumed the asbestos‑manufacturing
operations. Subsequently, GAF faced
asbestos‑related bodily injury claims and sought coverage under insurance
policies issued to GAF from May 1, 1961 to May 1, 1967. The insurers denied coverage on grounds that
Ruberoid did not qualify as a “named insured” because it was acquired after the
policies had expired. The California
Superior Court ruled in favor of the insured, concluding that the pre-merger
policies covered Ruberoid’s asbestos‑related liabilities. On appeal, however, the California Court of
Appeals reversed:
A liability insurance policy has a
finite duration. The period of time
during which the insurance policy is effective is an essential element of a
liability insurance contract, and the reason is obvious: the insurer’s
obligation to indemnify is limited to insurable events occurring during the
coverage period. Unless coverage has
been triggered during the policy period, there is no coverage once the policy
period has ended. Logically, then,
neither is there a named insured once the policy period has ended. Thus, a corporate acquisition taking place
after the policy has expired can have no retroactive effect on the identity of
the named insured during the policy period.[112]
The court rejected the insured’s argument that the
“hereafter constituted” phrase in the “named insured” endorsements entitled GAF
to coverage for Ruberoid’s asbestos liabilities.[113]
Instead, the “named insured” endorsement
and the “hereafter constituted” language had to be read in conjunction with the
policy period provisions:
We do not doubt that the phrase “or hereafter constituted” within
the named insured definition would extend coverage to a company acquired after
the policy period began. But the word
“hereafter” cannot reasonably be read as referring to any time in the
indefinite future. Obviously, in the
abstract, the phrase “or hereafter constituted” could refer either to companies
acquired at any time in perpetuity or to those acquired after the inception of
the policy but before the end of the policy term. As a matter of policy interpretation,
however, the phrase must be read within the context of the policy as a whole,
and thus must be read in conjunction with the policy period.[114]
The Armstrong court further held that its finding of no coverage for a
company acquired after termination of the policy period applies equally to any
policy “which expressly limits the named insured to those companies owned or
acquired by GAF during the policy term.”[115]
Similarly, in Maryland
Casualty Co. v. W.R. Grace & Co.,[116] W.R. Grace & Company (“Grace”) purchased
CGL insurance prior to 1963. The
insurer, Maryland Casualty, argued that Grace had no asbestos‑related
activities and did not acquire asbestos-manufacturing companies until after the
policies expired in 1963. The United
States District Court for the Southern District of New York held that there was
no coverage for Grace’s after‑acquired asbestos‑related companies:
Grace is not seeking coverage for claims against its acquired
companies. Grace seeks coverage for
claims against it directly. In effect,
however, Grace seeks coverage for its acquisitions. As indicated, Grace had no involvement with
asbestos before 1963. Its status as a
defendant in the relevant underlying cases necessarily arises from its acquired
companies. Maryland did not insure Grace
for the pre‑acquisition activities of those companies. . . . Any injury to a claimant occurred before
Maryland came on the risk.[117]
Thus, the court accepted
Maryland Casualty’s argument:
Liability insurance, Maryland submits, covers only the business
specified in the policy and does not cover a subsequently acquired, distinct
and separate business. To provide such
coverage, Maryland says, would amount to a windfall of coverage for which no
premium could possibly have been charged.
As an example of the windfall, Maryland submits that accepting Grace’s
argument would mean that Grace could acquire the Johns‑Manville
Corporation and if claimants sued Grace as the successor of Johns‑Manville,
the bankrupt Manville Trust would again be funded through Maryland’s policies.[118]
An analogous situation occurs when a policyholder seeks
coverage for environmental liabilities imposed at contaminated waste sites when
those sites were acquired (or a nexus created) after the expiration of
insurance policies. In this
circumstance, courts have ruled that an insured is not entitled to coverage for
after-acquired sites, even though the operations causing contamination were
conducted at the site by another entity while the policies were in effect. One such case is Koppers Company, Inc. v. Insurance Company of North America.[119] INA issued excess liability policies to
Koppers Company from 1960 through January 1, 1966. Following expiration of the policies, Koppers
acquired certain industrial sites which were later determined to have suffered
hazardous waste contamination both before and after the Koppers purchase. When adjudicated liable for remediation costs
under CERCLA, Koppers sought coverage for at least part of the clean-up costs
under the INA policies. Rejecting
Koppers contention that its claims came within the policy’s definition of
“occurrence,” the court stated that the controlling issue instead “involves the
meaning an significance of a policy period.”[120]
In this case, the
event that triggers the liability for which Koppers seeks coverage is not the
release of hazardous substances during the policy period; the event that
imposes liability against Koppers is Koppers’ acquisition of the property. This event occurred after the expiration of
the policy period. Consequently, the
acquisition of the property is not an event that INA insured.[121]
Turning to an analysis of the public policy issues implicated
by Koppers’ argument, the court further noted:
A
ruling allowing Koppers to unilaterally increase the risks for which there is
coverage years after the expiration of the policy is inconsistent with the
concept that INA is no longer Koppers’ insurance company. It is the responsibility of the courts to
give legal significance to the policy period that takes into account the
commercial realities of the relationship between the purchaser of an occurrence
policy and the insurance company.[122]
Returning to the
hypothetical, it appears that an insured such as NewWave, seeking coverage
under policies issued to NewWave for environmental liabilities imposed as a
result of an acquired company’s pre-merger activities, probably would not find
coverage.
[1] Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 636 (1819) (Marshall, J.).
[2] See, e.g., Browning‑Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 284 (1989) (O’Connor, J., concurring and dissenting).
[3] 1 William Meade Fletcher, Fletcher Cyclopedia of the law of Private Corporations §§ 2.10, 3 (perm. ed. rev. vol. 1999) [hereinafter Fletcher]. Although corporations today are creatures of legislation, they were at one time (in England) creatures of sovereign grant from the King. Id. § 3.
[4] 18A Am. Jur. 2d Corporations § 42 (1985) [hereinafter Am. Jur. 2d Corporations].
[5] State v. Luv Pharmacy, Inc., 388 A.2d 190 (N.H. 1978).
[6] The attribute of artificial personhood, by which a corporation has a real existence with rights and liabilities separate from its individual shareholders, “is universally regarded as the most distinctive corporate faculty and as distinguishing a corporation, above all other features, from unincorporated associations.” Fletcher, supra note 3, § 7.
[7] Id. § 5.
[8] See Am. Jur. 2d Corporations, supra note 4, § 5. In a few very extreme cases, courts may “pierce the corporate veil,” and hold some or all of the shareholders personally liable for the corporation’s debts. See generally Robert Charles Clark, Corporate Law § 2.4 (1986). A court, however, may look beyond the corporate form only for the defeat of fraud or wrong or the remedying of injustice. See generally Hanson v. Bradley, 10 N.E.2d 259, 264 (Mass. 1937).
[9] Am. Jur. 2d Corporations, supra note 4, § 5.
[10] Id.
[11] See Carol B. Swanson, Corporate Governance: Sliding Seamlessly Into the Twenty-First Century, 21 J. Corp. L. 417, 421 (1996).
[12] See 15 Pa. Cons. Stat. §§ 1301 et seq.; 5301 et seq. (2000).
[13] Corporations may be incorporated for any purpose that is lawful. See 15 Pa. Cons. Stat. §§ 1301, 5301 (2000); 19 Pa. Code §§ 23.4b, 41.4 (2000). The Pennsylvania Supreme Court has construed “lawful purpose” to mean any purpose not injurious to the community. See Re Monessen Volunteer Fire Dept., 52 A.2d 179 (Pa. 1947).
[14] See generally Re Incorporation of Nottingham Fire Co., 149 A.2d 119 (Pa. 1959).
[15] See generally Re Hilltop Club’s Application, 34 Pa. D. & C. 592 (1938). The articles of incorporation must set forth the corporation’s name, its purpose (e.g., “to engage in any lawful business”), and the number of shares the corporation is authorized to issue, inter alia. See generally 12 Pa. Jur. Business § 4:8 [hereinafter Pa. Jur. Business].
[16] See Worcester Volunteer Fire Dept., Inc., 19 Pa. D. & C.2d 483 (1959). A number of initial items are resolved at the organizational meeting. For instance, initial shares are usually issued; officers are elected; the bylaws are approved, etc. See generally 12 Pa. Jur. Business, supra note 15, § 4:22.
[17] See Clark, supra note 8, § 3.1 et seq.
[18] See General Datacomm Indus., Inc. v. State of Wisconsin Inv. Bd., 731 A.2d 818, 821 & n.2 (Del. Ch. 1999). Most modern statutes allow the corporation to modify this scheme. See id.
[19] In all elections for directors, the number of votes a shareholder gets equals the number of shares she holds, multiplied by the number of directors standing for election. See Clark, supra note 8, § 3.1.1.
[20] See id.
[21] See id. § 3.2.1.
[22] Id.
[23] Id. § 3.4.2.
[24] Id. § 3.4.1.
[25] Black’s Law Dictionary 1428 (6th ed. 1990). Control requires more than fifty percent of the voting stock. Id.
[26] Harry G. Henn & John R. Alexander, Laws of Corporations and Other Business Enterprises 355 (3d ed. 1983).
[27] Pa. Jur. Business, supra note 15, § 1:24.
[28] Id.
[29] Id.
[30] See discussion supra note 8, and accompanying text.
[31] See Henn & Alexander, supra note 26, at 355-56. A court will pierce the corporate veil in the parent-subsidiary context when one entity becomes so involved and intertwined in, or so controls the activities of the other, as to compel disregard of the technical separate existence of each entity and holding the one legally accountable for what the other does. See Technograph Printed Circuits, Ltd. v. Epsco, Inc., 224 F. Supp. 260 (E.D. Pa. 1963). “The formulae most commonly invoked to determine the extent of a parent corporation’s liability for the torts and contracts of its subsidiaries, and in various other classes of cases, are (1) agency, (2) instrumentality, (3) identity or alter ego, (4) fraud, and (5) abuse of control or inequitable use of the separate entity privilege.” See 1 James D. Cox et al., Corporations § 7.16 (Supp. 2000) (citations omitted).
[32] See Henn & Alexander, supra note 26, at 355-56.
[33] Id. at 654.
[34] Id.
[35] Id. at 653-54.
[36] Pa. Jur. Business, supra note 15, § 10:7.
[37] Id.
[38] See Alan C. Myers, Introduction to Mergers and Acquisitions, 637 PLI/Corp 155, 165 (1989).
[39] Pa. Jur. Business, supra note 15, § 10:21.
[40] Id.
[41] See Myers, supra note 38, at 168.
[42] Pa. Jur. Business, supra note 15, § 10:21.
[43] Del. Code Ann. tit. 8, § 259 (2000).
[44] Mesa Partners v. Phillips Petroleum Co., 488 A.2d 107 (Del. Ch. 1984).
[45] Western Air Lines, Inc. v. Allegheny Airlines, Inc., 313 A.2d 145 (Del. Ch. 1973).
[46] Pa. Jur. Business, supra note 15, § 9:14.
[47] See Clark, supra note 8, § 13.1.
[48] Id. § 3.1.1.
[49] See Daniel G. Litchfield & David M. Rownd, Corporate Relationships and Coverage, Coverage, Nov./ Dec. 1998, at 41-42.
[50] See Myers, supra note 38, at 167.
[51] Id.
[52] Id.
[53] See Clark, supra note 8, § 3.1.
[54] Id. For a representative statute, see Del. Code Ann. tit. 8, § 271(a) (2000).
[55] Pa. Jur. Business, supra note 15, § 11:1.
[56] Id. § 11:2.
[57] Id.
[58] See 15 Pa. Cons. Stat. §§ 1975(a), 5975(a).
[59] See Pa. Jur. Business, supra note 15, § 11:2.
[60] See id. § 11:9.
[61] Id.
[62] Northern Ins. Co. v. Allied Mutual Ins. Co., 955 F.2d 1353, 1358 (9th Cir. 1992), cert. denied, 505 U.S. 1221 (1992).
[63] Couch on Insurance § 35:7.
[64] Contractual prohibitions against assignment of such “choses in action” generally are unenforceable, unless the wrong underlying the chose in action is to “the person, reputation or feelings of an injured party.” See Webb v. Pillsbury, 144 P.2d 1 (Cal. 1943).
[65] 955 F.2d 1353 (9th Cir. 1992), cert. denied, 505 U.S. 1221 (1992).
[66] Id. at 1357.
[67] Id.
[68] Id. at 1358. Other courts have concluded that, once an insured loss has occurred and liability is fixed, the right to coverage for that loss can be assigned without the insurer’s consent, even though the policies provided that the insurer must consent to an assignment of the policy itself. See Greco v. Oregon Mut. Fire Ins. Co., 12 Cal. Rptr. 802 (Ct. App. 1961); Travelers Indem. Co. v. Israel, 354 F.2d 488, 490 (2d Cir. 1965); Int’l Rediscount Corp. v. Hartford Accident & Indem. Co., 425 F. Supp. 669, 672 (D.C. Del. 1977); Ardon Constr. Corp. v. Firemen’s Ins. Co., 185 N.Y.S.2d 723 (1959); 6B J. Appleman, Insurance Law and Practice § 4269 (rev’d ed. 1979) (liability insurance); 5A J. Appleman, Insurance Law and Practice § 3458 (rev’d ed. 1979) (property insurance). The principle that coverage right may be assigned notwithstanding a contractual prohibition of assignment has been extended to afford coverage to the successor by merger under policies of insurance issued to a merged corporation for losses that preceded the merger. See Aetna Life & Cas. v. United Pacific Reliance Ins. Cos., 580 P.2d 230 (Utah 1978); Chatham Corp. v. Argonaut Ins. Co., 334 N.Y.S.2d 959 (1972); Brunswick Corp. v. St. Paul Fire & Marine Ins. Co., 509 F. Supp. 750 (E.D. Pa. 1981). Courts also have applied the principle to provide coverage to the transferee of all assets of a transferor under policies of insurance that issued to the transferor without an express assignment of the policies. See Citicorp Indus. Credit, Inc. v. Federal Ins. Co., 672 F. Supp. 1105 (N.D. Ill. 1987).
[69] 955 F.2d at 1358.
[70] 947 F. Supp. 1476 (W.D. Wash. 1996).
[71] Id. at 1481.
[72] No. C-89-3973-DLJ, 1991 U.S. Dist. LEXIS 11350 (N.D.Cal. Feb. 25, 1991). According to one federal district court, the National Union decision was vacated “as a condition of settlement.” See Total Waste Mgmt. Corp. v. Comm. Union Ins., 857 F.Supp. 140, 149 & n.11 (D.N.H. 1994).
[73] National Union, 1991 U.S. Dist. LEXIS 11350, at *13. More recent cases have criticized the “hereafter constituted” approach to finding insurance coverage in the successor liability context. See UMC/Stamford, Coopers Cos., CPC Int’l, and Caterpillar, discussed infra.
[74] See, e.g., Del. Code Ann. tit. 8, § 259(a) (2000).
[75] See, e.g., Brunswick Corp. v. St. Paul Fire & Marine Ins. Co., 509 F. Supp. 750, 752 (E.D. Pa. 1981) (surviving corporation stands in same position as that occupied by the merged corporation; therefore, the rights under the merged corporation’s insurance policies are automatically vested in the surviving corporation by operation of the merger statute); Paxton & Vierling Steel Co. v. Great American Ins. Co., 497 F. Supp. 573, 574 (D. Neb. 1980) (refusing to apply no-assignment clause. Since surviving corporation assumes merged corporation’s liabilities by operation of the merger statute, it should also be permitted to avail itself of statutorily-conferred benefits).
[76] 654 A.2d 503 (N.J. Super. Ct. App. Div. 1995).
[77] Id. at 505-506.
[78] No. 98-3628, slip op. (Wis. Ct. App., District II, Jan. 19, 2000), reprinted in 14 Mealey’s Lit. Rep.: Ins. No. 12, Jan. 25, 2000.
[79] See slip op. at 9.
[80] Id. at 10.
[81] Id. at 16.
[82] 29 Cal. Rptr.2d 627 (Ct. App. 1994).
[83] Id. at 632 (citations omitted).
[84] Id. at
631.
[85] Id.
[86] 668 N.E.2d 1152 (Ill. App. Ct.), app. denied, 675 N.E.2d 631 (Ill. 1996).
[87] Id. at 1157 (quoting Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr.2d 690, 726 (Ct. App. 1996)).
[88] The “named insured” endorsement at issue in Caterpillar provided that “[t]he words ‘named insured’, wherever used in this policy, include any subsidiary, allied or affiliated company of Caterpillar Tractor Co. or its subsidiaries.” Id. at 1155.
[89] Id. at 1157‑58. See also Emerson Electric Co. v. Aetna Cas. & Sur. Co., 667 N.E.2d 581 (Ill. Ct. App. 1996), app. denied, 671 N.E.2d 729 (Ill. 1996) (CGL policies issued to Emerson did not cover environmental cleanup costs attributable to a division of Emerson acquired after inception of the policies).
[90] 638 A.2d 537 (R.I. 1994).
[91] Id. at 542‑43.
[92] The “named insured” endorsement at issue in the Textron case provided that “‘named insured’ means the persons or organizations designated in the declarations page and also any subsidiary company (including subsidiaries thereof) or entity of such named insured now existing or which such named insured may acquire, organize or control during the policy period.” Id. at 540.
[93] Id. at 541.
[94] 647 A.2d 182 (N.J. Super. Ct. Law Div. 1994).
[95] The “named insured” endorsement at issue in the UMC/Stamford case identified the named insured “as stated in Item 1 of the Declarations forming a part hereof and/or subsidiary, associated, affiliated companies or owned and controlled companies as now or hereafter constituted and of which prompt notice has been given to the company.” Id. at 188.
[96] Id.
[97] 857 F. Supp. 140 (D.N.H. 1994).
[98] Id. at 146.
[99] 647 F. Supp. 1064 (D. Idaho 1986).
[100] Gulf had purchased CGL insurance from July 31, 1963 to May 9, 1968 from Home Indemnity Company.
[101] Id. at 1077.
[102] Docket No. L‑37236‑89, slip op. (N.J. Super. Crim. Div. Apr. 15, 1996).
[103] Id. at 36.
[104] Civil Action No. 87‑7172, slip op. (Mass. Super. Ct. Aug. 3, 1993).
[105] Id., slip op. at 20‑21 (citations and quotation marks omitted).
[106] Case No. 89‑CV‑16174, slip op. (Milwaukee County Cir. Ct. Dec. 22, 1992).
[107] Id., slip op. at 8, 10.
[108] Cause No. 49D01‑9301‑CP0026, slip op. (Ind. Super. Ct. Oct. 23, 1996), and slip op. (Ind. Super. Ct. Aug. 20, 1997).
[109] Id., slip op. at 9 (Aug. 20, 1997).
[110] Id.
[111] 52 Cal. Rptr.2d 690 (Ct. App. 1996).
[112] Id. at 726 (citations omitted).
[113] Id. at 725.
[114] Id. at 725‑26 (citations omitted).
[115] Id. at 726.
[116] 794 F. Supp. 1206 (S.D.N.Y. 1991).
[117] Id. at 1231‑32.
[118] Id. at 1231.
[119] No. GD95-11243, slip op. (C.P. Allegheny County Oct. 28, 1997).
[120] Id. at 12.
[121] Id., slip op. at 13.
[122] Id., slip op. at 14.
(Author’s bio)
Gale White is a partner in the Philadelphia law firm of White and Williams LLP and heads the firm’s Business Insurance Practice Group. She obtained a B.S. degree from Cornell University, an M.S. degree from Drexel University in Philadelphia, and a J.D. degree, cum laude, from Wake Forest University Law School. Ms. White represents businesses and insurance companies in a variety of areas, including advertising injury liability, business tort and intellectual property coverage, e-business issues, coverage for construction defect and products liability, and bad faith defense. She has litigated declaratory judgment actions in various districts around the country. Ms. White is admitted to practice law in Pennsylvania and New Jersey and is a member of the Defense Research Institute. She is also the past Chair of the Insurance Coverage Section of the Federation of Insurance & Corporate Counsel.