Filing A Liability Claim

With claims for general liability coverage for environmental contamination continuing to rise, policyholders are looking for alternate or multiple sources of insurance recovery. Oftentimes, one corporation finds itself subject to environmental liability due to the acts of a predecessor corporation with whom it has merged.

Insurance claims professional's face, with increasing regularity, claims for insurance coverage by a successor corporation under a policy issued to a predecessor or claims under the successor corporation's own policies for the acts of its predecessor. The emerging legal trends which will ultimately define the scope of coverage for these claims are addressed.

Imagine you are an insurance underwriter I who sold a comprehensive general liability policy issued to a corporation (we'll call it the "Polluting Predecessor Corp.") in 1985. In 2005, you suddenly find yourself faced with a demand letter from the Acme Successor Corporation, an entity to which you have never sold insurance coverage, seeking defense and indemnity coverage. You cannot understand why the claim is tendered to you until you read the last paragraph of the letter:

We hereby demand coverage under the policy issued to Polluting Predecessor Corporation for claims being prosecuted against it and us for bodily injury caused by Polluting's products.

How can we owe coverage to Acme today under a policy we issued to Polluting Predecessor Corp. 20 years ago? You come to learn that during the time since coverage originally was issued to Polluting, it has sold its assets to Acme Successor Corp. and either merged with it or wound up its affairs and dissolved under applicable state law. Conventional legal wisdom suggests that Acme, under state merger statutes, succeeds to the benefits of any insurance policies issued to Polluting Predecessor Corp.

The implications of this scenario are disturbing, especially when coverage originally was issued to Polluting Predecessor Corp. and no assignment of the policy was consented to by the insurer. Nevertheless, the insurer is faced with potential defense and indemnification of an entity to which it never issued coverage.

The scenario becomes even more troubling when two additional facts are added. First, Acme's demand for coverage is precipitated by governmental environmental liability claims under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Second, soon after Acme makes its claim for coverage, the presumed defunct Polluting Predecessor Corp. and several of its managing directors and officers are also sued under CERCLA and make claims for defense and indemnity.

Under these circumstances, you must decide whether Acme has insured status under the 1985 policy. Until recently, the trend in federal and state decisions in non-CERCLA successor liability cases seemed to indicate that an insurer might have to provide coverage to both predecessor and successor corporations.