UpJohn And California Liability

The California court recently stated that there was no basis to hold Upjohn liable at the time of the property injury which occurred during the years that General Accident's policies were in effect. The fact that property damage occurred during these years, but not to property which was connected to California general liability insurance would not automatically result in coverage under one of the policies.

The court concluded that:

During the (General Accident) coverage years at issue, the environmental statutes applicable to Upjohn's alleged liability were not in effect. Indeed, the idea of holding entities strictly liable for environmental damage caused by others was probably unheard of, at least within the halls of Congress.

Moreover, if the court were to enforce plaintiff's view, the insurance company would be subject to liability, the risks of which could never be reasonably they evaluated. As per court there is no way an insurance company could reasonably evaluate the risks of providing insurance coverage for property damage caused by someone other than its insured at a time when the insured neither has nor reasonably foresees any legal or factual relation o the property.

The reasoning and result of the Upjohn Company case sets an outer boundary (albeit a relatively easy one) on the scope of insurer coverage of CERCLA liability for successor corporations. It also demonstrates that while there may exist a general rule in products r liability cases which disregards the potential increase in risk to an insurer, CERCLA is considered to be a different scheme for coverage purposes. Indeed, in the language of the Upjohn Company court's decision, there is a foreshadowing of an issue pivotal to the court's reasoning in Quemetco: the timing of CERCLA passage with respect to the policy years at issue.

However, the decision does not address the issue of successor liability when coverage is sought by the successor corporation under a predecessor's policies. Utilizing the reasoning of many courts that coverage follows the liability, rather than following the insured, it would seem that there would be no further limitations on coverage. This prospect is particularly troubling when an insurer is faced with a claim for coverage of CERCLA liability not merely by the successor corporation but also by the dissolved predecessor corporation.

What is the result when Acme claims coverage under policies issued to the merged Polluting Predecessor Corp., which were in effect during the time when polluting activity occurred, only to be faced a short time later with the same claim for coverage by the dissolved Polluting Predecessor Corp.? This scenario is not far-fetched and can arise due to the peculiar interaction of the states' merger and dissolution statutes and CERCLA.

Following the dissolution of a corporation, there is often a survival period to permit suits against corporations so as to prevent them from dissolving in order to frustrate creditors' claims. After the survival period, under state law, the dissolved corporation no longer has capacity to be sued.

Several courts have noted, however, that the state dissolution statutes conflict with CERCLA's liability scheme and, therefore, may be preempted by CERCLA. Several courts have suggested that under CERCLA a dissolved corporation can be sued for its polluting activities after the survival period, which would preempt state capacity statutes to the contrary. This raises the question: if a corporation can be sued after its dissolution, and the coverage provided under policies of insurance is assigned to the successor either by agreement of the predecessor and successor or by operation of law, are there not now two entities that may seek coverage under one policy?