No Assignment Clauses

Specifically, how does an insurer of commercial general liability insurance respond to a request for defense or indemnification by Acme, when Polluting Predecessor Corp. has also been sued and, indeed, may also make a claim for defense or indemnification for the same activities?

A dissolved corporation may find itself named and sued under CERCLA with distributed assets being at risk. The former directors or officers of the dissolved corporation may also suddenly find themselves defendants in an environmental impairment action.

Does the operation of the state merger statutes mean that not only must an insurer extend coverage to Acme Successor Corp., which is not even a named insured under the policies, but also to Polluting Predecessor Corp., to whom the policies were issued but which no longer exists?

This incongruous result seems predetermined by the prior decisions discussed previously in other areas of coverage law. However, in the only reported decision to consider this scenario, Quemetco Inc. v. Pacific Automobile Ins. Co., the court ruled that the surviving corporation may not recover for CERCLA liability against the merged corporation's policies due to the validity of the "no-assignment" clause and the increase in risk to the insurers.

This unexpected enforcement of the "no-assignment" clause is remarkable in light of case authority discussed above, and represents a realistic assessment of how insurance coverage is impacted by CERCLA liability.

In Quemetco, the court was confronted with general liability policies issued to Western Lead Products, a California corporation, which subsequently changed its name to Quemetco, Inc. Old Quemetco skipped sulfuric acid waste and battery electrolytes to the Stringfellow acid pits during the relevant policy periods of the insurers.

Both Old and New Quemetco tendered the CERCLA claim to their insurers, including General Accident. The insurers declined coverage, and their insured's instituted a declaratory judgment action seeking judicial determinations of the parties' rights and responsibilities under the policies. The insurers cross-claimed against Old and New Quemetco and filed summary judgment motions arguing that there was no obligation to defend or indemnify New Quemetco, because it was not the named insured. The trial court granted the insurers' motions, and New Quemetco appealed.

On appeal, New Quemetco's argument was identical to the argument adopted by the Northern Ins. Co. v. Allied Mutual court and accepted by many others. New Quemetco asserted that the benefits of the Western Lead/Old Quemetco policies, including the right to a defense, were transferred by operation of law to New Quemetco at the time of the asset purchase. As policyholders had argued previously, with some success, New Quemetco argued that the right to defense and indemnity arising from the policy was transferred together with the potential liability.

Thus, New Quemetco argued that despite the fact that the policy contained a "no-assignment" clause, the right to defense and indemnity followed the liability of Old Quemetco, wherever it might rest, rather being personal to the named insured. However, the Quemetco court refused to extend the Northern Ins. reasoning, which took place in a product liability case, to the CERCLA claim of New Quemetco.

The court noted that the insured's were found liable for clean up under CERCLA, which had not even been passed at the time the asset purchase took place. Thus, unlike the situation in Northern Ins., no liability passed as a matter of law at the time of the asset sale as no such liability existed at that time.