CERCLA And Congress

Unlike products general liability insurance coverage originating under common law, such as claims originating in the area of asbestos, CERCLA liability is a creation of Congress. Policies which were issued before CERCLA's passage did not contemplate the risk of strict environmental liability, and assignment of those policies to a successor corporation will materially increase the risk to the insurer. Underwriters are now being asked to take on liability that the underwriter did not contemplate.

Further, since CERCLA preempts state capacity statutes, which ordinarily bar suits against dissolved corporations, it is possible to have claims tendered under CERCLA by both the predecessor and successor corporations. The general rule for successor corporations is that they succeed to the rights of the predecessor under policies of insurance. There are attempts being made to use this general rule in the area of CERCLA liability. However, a recent California Court of Appeal's decision may provide the legal basis to deny coverage for the successor entity because of an increased risk to insurers through assignment of the policies and the danger of a double tender.

Corporations are creatures of state law. A corporation's existence, merger, succession, and dissolution are all governed by applicable state laws. While many aspects of corporate law vary among the states, there are general principles that are fairly constant across the country with respect to issues of corporate merger, succession, B and dissolution. We will explore the general i principles in order to provide a legal framework within which to address the parameters of successors and insurance coverage for corporate their predecessors.

Returning to the opening scenario, there are many ways in which Polluting Predecessor Corp. might merge with or be succeeded by Acme Successor Corp. Specifically, Acme might all the stock of Polluting Predecessor acquire Corp., and effectuate a merger. Alternatively, the assets of Polluting Predecessor Corp. may be sold to Acme. Often in the case of an asset sale, any remaining assets after the merger would be distributed to the shareholders, the corporate affairs would be wound up, and the corporation would eventually be dissolved pursuant to state law.

Like any other aspect of a corporation, the liabilities of Polluting Predecessor Corp. can also be addressed in an asset sale or merger. Certain liabilities, such as environmental liability, can be accepted by Acme in consideration for certain other concessions, including the assignment of all insurance policies issued to Polluting Predecessor Corp. The assignment of insurance policies to Acme might also occur by operation of law under the state's corporation law.

Regardless of the mechanism utilized for the merger, the end result, which is controlled by the law of the state of incorporation for the surviving corporation, is one surviving corporation and one dissolved corporation. The effect of a merger as stated under the Delaware General Corporation Law is generally followed by all the states:

When any merger or consolidation shall have become effective under this chapter, for all purposes of the laws of is state, the separate existence of all the constituent corporations, where of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged, as the case may be, shall cease and the constituent corporation shall become a new corporation, or be merged into one of such corporations, as the case may be, possessing all the rights, privileges, powers, and franchises, as well of a public and of a private nature.