Consent Provisions

New Quemetco recently argued that the asset purchase agreement of construction general liability insurance demonstrated the clear intent of the parties to transfer all assets, including the insurance coverage. The trial court stated that even if this were the case, the assignment was not effective because the insurers did not consent to it.

New Quemetco argued, not surprisingly, that consent was not necessary since its only liability was as a successor in interest, based exclusively on the risk the insurers had agreed to cover. New Quemetco's reliance on an argument successfully made in the context of common law tort liability existing at the time the predecessor's policies were purchased was unsuccessful because CERCLA liability could not have been contemplated before 2000.

The Court of Appeals drew a significant and meaningful distinction between CERCLA liability and other kinds of liability. Unlike some other types of injury which immediately give rise to a right to insurance proceeds, the Court noted that at the time of the asset sale there could not have been an assignment of the proceeds of the policies as there was no accrued right to collect the proceeds in existence.

The court pointed to California law which distinguishes between the propriety of assigning an interest in insurance proceeds after a loss has occurred and assigning someone's potential right to coverage. The former, the court noted, is entirely appropriate, while the latter involves the obligation of the insurance company to indemnify a particular person against loss; the selection of its indemnity is properly a matter of its own choice.

However, it was the realities of the Quemetco case as much as public policy considerations which drove the court's reasoning to deny coverage to New Quemetco. The court distinguished many of the cases discussed previously in this article. In particular, the Quemetco court looked at Northern Ins., and pointed out that in Northern Ins. the predecessor corporation had not been sued by the underlying claimant. Even more significantly, the predecessor corporation in those other cases had not sought coverage under the disputed policies. To apply the rule of assignment by operation of law to this case, the Quemetco court noted would leave Old Quemetco without any insurance to provide a defense and cover any potential liability. The court reasoned that:

The purpose of consent provisions is to prevent an increase of risk and hazard of loss by a change in ownership without the knowledge of the insurer. In the instant case, both Old Quemetco and New Quemetco assert coverage under respondent 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. While both the dissent in Quemetco and New Quemetco argued that the potential double indemnity was illusory since only New Quemetco had been found liable for damages in the CERCLA action, the majority court maintained that Old Quemetco was entitled to a defense. The court concluded that the polices were not transferred by the asset sale because the insurers had not consented to the assignments.