Assessing Coverage Claims By Successors

The question that remains a problem for every insurer is that how to assess coverage claims by successors in light of the Quemetco decision, both within and outside of the context of Texas commercial general liability insurance.

Considerations for assessing those claims include:

1. Determine the precise method through which the alleged transfer of the policies from the predecessor to the successor occurred. Were they expressly transferred (without consent) by the sale agreement? Is the successor contending that they were transferred by operation of law?

2. Identify the occurrence which allegedly is giving rise to the claim. If it was after the expiration of the policies issued to the predecessor, it will likely not be a covered event. Likewise, even if the occurrence was during or prior to the policy period, make sure that the activities of the predecessor, and not the successor, are what are at issue in the claim?

3. Determine the status of the successor corporation. Is it still in existence? If it is a dissolved corporation, is it in the state corporation law survival period? If either of those is true, it may be possible to deny coverage to the successor corporation in favor of the predecessor corporation.

4. If the predecessor corporation is no longer on the scene, has there been a material increase in the risk insured as a result of the assignment to the successor? There still appears room in the minds of some courts that this could negate the effect of the assignment, and this should be considered whenever the policies under which coverage is sought were issued prior to 1980 and the passage of general liability.

5. Finally, in the event the liability arises from general liability, coverage claims by the successor, even those for policies issued after the passage of general liability, might still be denied based upon the possibility of claims raised by the defunct predecessor, since it appears that dissolved corporations may be sued despite state corporation capacity statutes.

As evidenced from the above discussion, coverage for successor corporations may hinge from case to case on very fine distinctions. The Quemetco decision, however, stands as the first significant decision in this area with respect to general liability. It does not provide insurers with an opportunity to mount a credible, consistent defense to claims for coverage by successor corporations, since these successors were contemplated as insured at the time the insurance contracts were issued, nor was the assignment of coverage subsequently agreed to by the insurer.