Cooper’s predecessor, McGraw-Edison Co. (“McGraw”), previously obtained a variety of liability insurance policies from various insurers throughout the 1970s and ‘80s. At issue in the case was whether McGraw’s right to these policies was properly transferred, through a series of corporate transactions, such that Cooper could now access them for the EPA claim. The lower court found the relevant bill of sale language to be ambiguous and relied on deposition testimony from employees to find, among other things, that all assets and liabilities were meant to be transferred, including insurance rights. Insurers appealed.
The Appellate Division, in Cooper Industries LLC v. Columbia Casualty Co., Case No. A-0593-15T1 (April 13, 2018), considered two issues: (1) whether the bill of sale between Cooper and its predecessor properly transferred the insurance rights and, if so, (2) whether the transfer violated the anti-assignment clauses contained in the insurance policies in question.
The Appellate Division first reviewed Cooper’s extensive corporate history and found the relevant bill of sale language to be ambiguous as it exempted certain assets and transferred those assets to other companies, but never specified which particular assets were being transferred. As such, the Appellate Division referred to extrinsic evidence, consisting primarily of the testimony of certain Cooper employees. Based on that testimony, which was one-sided and never contradicted, the Appellate Division agreed with the lower court that the insurance rights were meant to pass to Cooper. “[W]e are satisfied as was the trial court that plaintiff intended the insurance rights to pass… plaintiff’s intentions in undergoing this corporate restructuring [was] abundantly clear.”
The Appellate Division then rejected the insurers’ argument that the transfer, if valid, should have been voided based on the anti-assignment clauses contained in the policies. The Appellate Division found that “once a loss occurs, an insured’s claim under a policy may be assigned without the insured’s consent. This is so because an assignment after a loss has occurred is not an assignment of the policy, but of the claim for the insurance.” Since the policies at issue were occurrence-based policies, the peril insured against was the occurrence itself and, upon the happening of the occurrence, “coverage attaches even though the claim may not be made for some time thereafter. Once a covered loss occurs, the assignment from the insured to another party of the right to make a related claim does not alter, in any meaningful way, the obligations of the insurer accepted under the policy, and instead changes only the identity of the entity enforcing the insurer’s obligation to insure the same risk.”
Thus, the assignment of insurance rights in this case was a valid post-loss assignment (as the EPA’s claim against Cooper was for the remediation of hazardous materials stemming from McGraw’s prior operations). Consequently, coverage for the EPA action was made available. While this was a significant victory for the insured, it also highlights the importance of clearly identifying the transfer of insurance rights when drafting M&A agreements. When faced with similar long tail liabilities, including environmental and asbestos claims, policyholders should be sure to diligently evaluate their corporate history to ensure they are accessing all available coverage, including policies purchased decades ago by predecessor companies, former subsidiaries, and/or affiliated companies.