Lead Opinion
Through a series of agreements, plaintiff Henkel Corporation (Henkel) acquired the metallic chemical product line of Amchem Products, Inc. (Amchem No. I),
Finding no specific language in the agreements assigning policies or policy benefits to Henkel or its predecessor, and no document in which defendant insurers consented to any assignment, the trial court entered summary judgment for defendants. The Court of Appeal reversed. It reasoned that in the absence of explicit language disclaiming any assignment, the right to insurance benefits passed to Henkel as a matter of law without need for consent from the insurers.
We conclude that under the circumstances of this case any assignment of benefits does require the consent of the insurers, and therefore reverse the judgment of the Court of Appeal.
I. Summary of the Corporate Transactions
Amchem No. 1, a Pennsylvania coloration, had two distinct product lines: agricultural chemicals and metallic chemicals. The metallic chemicals, which help paint adhere to metal, were sold to car and airplane manufacturers, including Lockheed. Defendants insured both of Amchem No. l’s product lines.
In 1977, Union Carbide Corporation acquired Amchem No. 1 by stock purchase and merger. In 1979, Amchem No. 1, now a Union Carbide subsidiary, created a new corporation, also known as Amchem Products, Inc., but a Delaware corporation (Amchem No. 2). By resolution of its board of directors, Amchem No. 1 transferred “all of its right, title and interest. . . in and to its domestic assets utilized in its metalworking business” to Amchem No 2.
After the 1979 contract, Amchem No. 1 (agricultural products) and Am-chem No. 2 (metallic chemicals) were separate subsidiaries of Union Carbide. In 1980, however, Union Carbide sold all of the stock of Amchem No. 2 to plaintiff Henkel. By acquiring the stock of Amchem No. 2, Henkel acquired all of its assets and liabilities. After Henkel purchased Amchem No. 2, these two corporations merged. In 1986, Union Carbide sold Amchem No. 1 to Rhone Poulenc, Inc.; these two companies merged in 1992. Thus, it is undisputed that Henkel has succeeded to all of the rights and obligations of Amchem No. 2, and Rhone Poulenc (now known as Aventis CropScience USA, Inc.) has succeeded to all of the rights and obligations of Amchem No. 1.
II. Background of This Litigation
In 1989, current and former Lockheed employees filed suit against Henkel and “Amchem Products, Inc.,” without distinguishing between Amchem No. 1 (in 1989 a Rhone Poulenc subsidiary) and Amchem No. 2 (which by 1989 had merged into Henkel). The suit alleged injuries arising from exposure to metallic chemicals during the period between 1959 and 1976. Henkel tendered its defense to defendant insurers, whose policies had insured Amchem No. 1 during portions of this period, and to Henkel’s own insurers. All refused coverage.
In 1992, the Lockheed plaintiffs served their complaint on Rhone Poulenc, named as “Amchem Products, Inc.” Rhone Poulenc moved to quash service. The Lockheed plaintiffs stipulated to the trial court’s granting Rhone Poulenc’s motion to quash. The stipulation states that the Lockheed plaintiffs “have been presented with documents establishing that Henkel Corporation is answerable for the liabilities of Amchem Products, Inc. alleged in the Lockheed Consolidated Cases. Accordingly, plaintiffs have no interest in asserting their claims against [Rhone Poulenc].”
In 1998, plaintiff Henkel, defendants, and Rhone Poulenc each filed motions for summary judgment. Because defendants had issued their insurance policies to Amchem No. 1—which no longer existed as an independent entity—the trial court’s first concern was to decide which party represented Amchem No. 1. The trial court ruled that Rhone Poulenc, not Henkel, was the corporate successor of Amchem No. 1 and was therefore the entity entitled to the protection of the liability policies defendant insurers had issued to Amchem No. 1.
Amchem No. 2 had assumed all the liabilities of Amchem No. 1 relating to the metallic chemical product line. Plaintiff Henkel then purchased all the stock of Amchem No. 2, which made Henkel responsible for all Amchem No. 2’s liabilities, including those inherited from Amchem No. 1. Henkel therefore argued in the trial court that even though it was not the corporate successor to Amchem No. 1, because it was responsible for Amchem No. 1 ’s liabilities relating to metallic chemicals as a matter of law, it should be entitled to the benefits of Amchem No. l’s liability insurance.
The trial court rejected Henkel’s argument. It found Henkel responsible for Amchem No. l’s torts, not as a matter of law, but because Henkel had voluntarily assumed that liability. The trial court also rejected Henkel’s contention that the 1979 contract, under which Amchem No. 2 acquired the assets and liabilities of Amchem No. l’s metallic chemical business, assigned to Amchem No. 2 the benefits of insurance coverage for those liabilities. Moreover, the court ruled that any such assignment would be void without defendant insurers’ consent. The trial court therefore entered summary judgment against Henkel.
The Court of Appeal reversed. Quoting Northern Ins. Co. of New York v. Allied Mut. Ins. (9th Cir. 1992)
Plaintiff Henkel here renews the argument made in the trial court that when it bought the metallic chemical product business (Amchem No. 2) from Union Carbide in 1980 it incurred liability as a matter of law for injuries caused by those products when they were being manufactured and distributed by Amchem No. 1. Because liability was imposed upon it as a matter of law, Henkel argues it should receive the benefits of Amchem No. l’s liability polices as a matter of law. (See Northern Insurance, supra,
Henkel’s argument why it should be entitled to Amchem No. l’s insurance protection as a matter of law depends on a showing that Henkel’s tort liability was imposed upon it by law. Henkel has failed to make that showing. As we explain, there are three situations in which a buyer of corporate assets may be liable for the torts of its predecessor, notwithstanding the purchaser’s failure to assume liability by contract, but Henkel does not show that this case falls within any of these categories.
First, the buyer of corporate assets may be liable as a corporate successor if “[1] the transaction amounts to a consolidation or merger of the two corporations, [2] the purchasing corporation is a mere continuation of the seller, or [3] the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller’s debts.” (Ray v. Alad Corp. (1977)
Second, a company that acquires another company’s product line may be liable for injuries caused by its predecessor’s defective products, if certain conditions are met. One condition is “the virtual destruction of the plaintiffs remedies against the original manufacturer caused by the successor’s acquisition of the business.” (Ray v. Alad Corp., supra,
Third, some statutes, notably the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601 et seq.) (CERCLA), impose liability upon successor corporations without regard to contract. (SmithKline Beecham Corp. v. Rohm and Haas Co. (3d Cir. 1996)
Thus, Henkel, the buyer of Amchem No. 2, is not liable by operation of law for injuries caused by defective products marketed by Amchem No. 1. Amchem No. 2, however, assumed by contract the liabilities of Amchem No. 1 relating to the metallic chemical business. When Henkel later bought all the stock of Amchem No. 2, that transaction did not change the status of Amchem No. 2 as a legal entity, so Amchem No. 2 continued to be responsible for those liabilities. The later merger of Henkel and Amchem No. 2 left Henkel, as the surviving coiporation, responsible for the liabilities of Amchem No. 2, and through it those of Amchem No. 1 relating to the metallic chemical product line.
Amchem No. 2 also acquired the assets of Amchem No. 1 relating to the metallic chemical business, and it continued to own those assets after Henkel acquired all of Amchem No. 2’s stock. (See National American Ins. Co. v. Jamison Agency, Inc. (8th Cir. 1974)
Three Court of Appeal decisions, although distinguishable from the case here on other grounds, confirm that the rights of a successor corporation in a case such as this depend upon contract. Oliver Machinery Co. v. United States Fid. & Guar. Co. (1986)
Plaintiff Henkel questions here whether the Court of Appeal decisions in Quemetco and General Accident were correct insofar as they refused to allow a successor to claim rights under its predecessor’s liability policies even though liability had been imposed on the successor not through contract, but by operation of law. We perceive no conflict, however, in authority or principle over the rule that when liability is assumed by contract, the successor’s rights are defined and limited by that contract.
IV. Any Assignment of the Benefits at Issue Is Ineffective Because the Insurers Did Not Consent
Whether or not Amchem No. 1 assigned any benefits under the liability policies to Amchem No. 2, any such assignment would be invalid because it lacked the insurer’s consent. Analysis of this issue must begin with the language of the policies themselves, and in this case there is no dispute that each of the policies contained clauses providing that there could be no “[assignment of interest under this policy” without the insurer’s consent endorsed on the policy. Such clauses are generally valid and enforceable. (See Bergson v. Builders’ Ins. Co. (1869)
Plaintiff Henkel does not claim that any insurer has executed a consent to assignment, but argues on two grounds that under the circumstances here an assignment does not require insurer consent. The first ground, that coverage should follow liability when the liability is transferred by operation of law, fails because, as we explained earlier, Henkel did not acquire the liabilities of Amchem No. 1 by operation of law, but assumed those liabilities by contract. Henkel’s second ground for arguing that insurer consent is not required is that under an occurrence-based liability policy (see Montrose Chemical Corp. v. Admiral Ins. Co. (1995)
“It is established that a provision in a contract or a rule of law against assignment does not preclude the assignment of money due or to become due under the contract [citations] or of money damages for the breach of the contract.” (Trubowitch v. Riverbank Canning Co. (1947)
In 1979, when Amchem No. 2 assumed the liabilities of Amchem No. 1, the duty of defendant insurers to defend and indemnify Amchem No. 1 from the claims of the Lockheed plaintiffs had not become an assignable chose in action. Those claims had not been reduced to a sum of money due or to become due under the policy. Defendants had not breached any duty to defend or indemnify Amchem No. 1, so Amchem No. 1 could not assign any cause of action for breach of such duty. (Cf. Comunale v. Traders & General Ins. Co. (1958)
Nonetheless, Henkel contends we should permit assignment of claims such as those brought by the Lockheed plaintiffs without insurer consent,
Recognizing this problem, Henkel argues that under the peculiar facts of this case the insurers face no such dual burden. Henkel points out that when the Lockheed plaintiffs’ lawsuit against Rhone Poulenc was dismissed, Henkel, the buyer of Amchem No. 2, was the only remaining entity facing potential liability for toxic injuries to Lockheed employees caused by the metallic chemical products of Amchem No. 1.
Nevertheless, if the Lockheed plaintiffs had refused to dismiss their suit against Rhone Poulenc, defendants would have faced the dilemma whether to defend Rhone Poulenc, Henkel, or both. The Lockheed plaintiffs’ decision to proceed only against Henkel, the buyer of Amchem No. 2, and not against both Henkel and Rhone Poulenc, should not affect Henkel’s right, if any, to the coverage benefits of Amchem No. l’s liability insurance policies. Those rights arise from and were fixed by contract—the 1979 contract by which Amchem No. 2 acquired the metallic chemical business from Amchem No. 1, the 1980 contract in which Henkel acquired the metallic chemical business by purchasing Amchem No. 2, and the insurance policies, including their “no assignment” provisions—and those rights do not rise or fall on the tactical decisions of tort plaintiffs.
In sum, Henkel does not demonstrate entitlement to the benefits of the liability policies at issue. This case is not analogous to those circumstances under which an assignment without the insurer’s consent has been upheld: (1) when at the time of the assignment the benefit has been reduced to a claim for money due or to become due, or (2) when at the time of the assignment the insurer has breached a duty to the insured, and the assignment is of a cause of action to recover damages for that breach. The assignment in this case does not fall within either category.
Plaintiff Henkel argues that even if it did not acquire the insurance benefits at issue here by assignment, it is nevertheless entitled to reimbursement of defense and settlement costs connected to the Lockheed litigation. Henkel claims that having defended and settled the Lockheed case on behalf of “Amchem Products, Inc.,” it is entitled to the protection of the Amchem Products’ insurance coverage retained by Union Carbide. Henkel’s argument confuses Amchem No. 1 and Amchem No. 2. As the corporate successor of Amchem No. 2, Henkel could defend and settle on behalf of that entity, but such action would entitle it only to the policy benefits acquired by Amchem No. 2. Henkel is not the corporate successor to Amchem No. 1, and therefore had no right to settle or defend a suit against Amchem No. 1 without the latter’s consent.
Disposition
The judgment of the Court of Appeal is reversed.
George, C. J., Baxter, J., Werdegar, J., Brown, J., and Ortega, J.,
Notes
Following the lead of the Court of Appeal, we distinguish between the two corporations named Amchem Products, Inc., by referring to the Pennsylvania corporation as Amchem No. 1 and the Delaware corporation as Amchem No. 2.
At the same time, Amchem No. 1 changed its name to Union Carbide Agricultural Products Company, Inc., reflecting that its product line was now limited to agricultural products. For convenience, we will continue to refer to the company as Amchem No. 1.
“Defendants” refers to those Amchem No. 1 insurers who are parties to this appeal. The term does not include the Henkel insurers that were defendants in the trial court but are not parties to this appeal.
Associate Justice of the Court of Appeal, Second Appellate District, Division One, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Dissenting Opinion
I dissent. The majority’s decision is contrary to well-settled law and provides an unfair windfall to insurers. The majority’s holding allows an insurer to avoid its obligations on hosts of existing claims by refusing to consent to an assignment of policy benefits, if the insured business has been sold. That is not the law. Instead, the rule is that the right to recover under a policy after a loss has occurred is an asset assignable separate from the policy itself. After a loss, the policy benefits can be assigned without insurer consent, the no-assignment clause notwithstanding. (Greco v. Oregon Mut. Fire Ins. Co. (1961)
I.
“While the general rule regards liability and indemnity policies as nonassignable personal contracts, assignment is valid following occurrence of the loss insured against and is then regarded as chose in action rather than transfer of actual policy.” (2 Couch on Insurance (3d ed. 1997) § 34:25,
In addition, courts of other states have agreed that an insured can assign the right to recover for pretransfer injuries without the insurer’s consent, notwithstanding a no-assignment clause. (See, e.g., Imperial Enterprises, Inc. v. Fireman’s Fund Ins. Co. (5th Cir. 1976)
The majority narrows this long-standing rale permitting assignment after the occurrence of a loss by stating that assignment is only valid when a claim against the policy has been “reduced to a sum of money due or to become due under the policy.” (Maj. opn., ante, at p. 944.) The majority concludes that the policy benefits at issue here “had not become an assignable chose in action” at the time of the transfer of the metallic chemicals business from Amchem No. 1 to Amchem No. 2, and therefore the right to recover under the policy could not be assigned without the consent of the insurers. (Ibid.)
It is unclear from what source the majority’s novel conclusion is derived. The majority cites the Court of Appeal decisions in Westoil, supra,
The majority’s abandonment of the general rule that “assignment is valid following occurrence of the loss insured against and is then regarded as chose in action rather than transfer of actual policy” seems predicated on a misconception of when a party has a “chose in action.” (2 Couch on Insurance, supra, § 34:25, p. 34-21.) The majority equates a chose in action with a claim that has been reduced to a sum of money due or to become due. Under the majority’s view, it seems that a party must file a claim, and this claim must result in a legal finding of liability, for a chose in action to lie.
A chose in action, however, is not necessarily a claim that has been reduced to a sum of money; it is much broader. In California, a chose in action, also known as a “thing in action,” is statutorily defined as “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) (See Black’s Law Dict. (7th ed. 1999) p. 234 [defining “chose in action” as “[t]he right to bring an action to recover a debt, money, or thing”].) A claim need not have been filed, or a judicial determination made, for there to be a chose in action. Instead, only a right to recover need exist. (See, e.g., Krusi v. S.J. Amoroso Construction Co., Inc. (2000)
As explained below, under the policies at issue in this case, a chose in action is established on the date of the injury, which is when the loss occurs. Therefore, the policy benefits become assignable without the consent of the insurer on the date of the injury, not, as the majority contends, when a claim for this injury has been reduced to a sum of money due or to become due.
II.
The insurance contracts at issue in this case are occurrence-based contracts. In Montrose Chemical Corp. v. Admiral Ins. Co. (1995)
In continuous injury cases, such as here, the insured’s actions result in claims of continuing or progressively deteriorating bodily injury or property damage. As we said in Montrose, “bodily injury and property damage which is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods.” (Montrose, supra,
In the present case, the claims under the policy are based on injuries to the Lockheed plaintiffs arising from exposure to metallic chemicals during the period between 1959 and 1976. During this period, defendant insurers received premiums to insure against injuries caused by Amchem’s metallic chemical business. Under our holding in Montrose, and reaffirmed in Aerojet, since the injuries occurred during the policy period, coverage for these injuries is triggered, and the loss insured against has occurred. (Montrose, supra, 10 Cal.4th at p. 669.)
Given this settled law, is unclear how the majority’s understanding that the policy benefits are assignable only after they are reduced to a monetary sum can be reconciled with Montrose. (Montrose, supra,
If the majority’s conclusion is applied beyond the assignment context, an insurer could avoid its obligations even if the policy benefits had not been
Clearly, this result would contravene the purpose of an occurrence-based policy. For these policies, coverage is established on the date of the event causing the injury. (Montrose, supra,
III.
The rule permitting assignment of the right to recover for injuries occurring prior to the transfer is consistent with the purpose of a no-assignment clause. In interpreting an insurance contract, courts “read[] the policy’s ‘language in context with regard to its intended function in the policy.’” (Galanty v. Paul Revere Life Ins. Co. (2000)
The risk insured against does not increase because the insurer’s duty to defend and indemnify relates to an injury or damage which was suffered by the claimant prior to the assignment of benefits to a successor corporation. As the court stated in Northern Ins. Co. of New York v. Allied Mut. Ins. (9th Cir. 1992)
In addition, the assignment of the right to recover for an injury occurring prior to the transfer does not necessarily change the nature of the burden on the insurer. As the Northern Insurance court stated: “The nature of the risk, rather than the particular characteristics of the defendant, will have the greater effect on defense costs. The extent and character of the defense will turn on the nature of the product itself and the attributes of the firm that manufactured the product. Aspects of the successor firm could affect the defense, but the shape of the defense will be determined largely by the characteristics of the risk originally insured. Admittedly, defense costs could balloon if the successor firm failed to cooperate in the defense. Inasmuch as the successor firm was not a party to the original policy, the risk of noncooperation arguably increases. Yet, the insurer is protected against this risk because it is freed of its defense obligation if the successor firm does not fulfill its duty to aid in the defense.” (Northern Insurance, supra,
The majority argues that the insurer may face an additional burden if the predecessor corporation still exists or can be revived, because an assignment of the right to recover for a presale injury could obligate the insurer to defend both the predecessor and the successor. (See maj. opn., ante, at pp. 944-945.) This is not the case. If a predecessor corporation assigns its insurance policy rights to a successor corporation, the insurer’s legal obligations would run only to the successor. (See Westoil, supra,
The majority’s holding allows insurers to secure a unfair windfall. The Lockheed plaintiffs alleged that their injuries were caused by exposure to metallic chemicals manufactured by Amchem and occurred during the time in which the policies issued by defendant insurers were in effect. The insurers in this case had received premiums to insure against these types of injuries. Yet under the majority’s holding, the insurers will owe no coverage to any party for a risk they promised to insure against and for which they were paid an agreed premium.
Moreover, the majority’s conclusion could restrict corporate restructuring, reorganization, merger, or sale. If an insurance policy contains a no-assignment clause, an insured is barred from assigning the benefits of presale insurance coverage unless a claim has been reduced to a monetary sum, or unless the insurer had breached a duty at the time of assignment. Under the majority’s decision, a predecessor company cannot assign the right to recover for presale injuries that have occurred, but for which no claim has yet been brought, without the consent of the insurer. Yet under our prior case law, liability for presale injuries that have occurred, but for which no claim has been brought, can be transferred to the successor company. (Ray v. Alad Corp. (1977)
A successor company would not be inclined to assume this risk of liability for the torts of a predecessor without also receiving the benefits of the predecessor’s insurance coverage for presale occurrences. It is highly unlikely that a successor company would be able to obtain insurance coverage for injuries that have already occurred before the successor’s acquisition of the business. Therefore, the only realistic way in which a successor corporation can obtain insurance coverage for the torts of its predecessor is if the predecessor is able to assign its insurance coverage benefits to the successor. The majority’s decision, however, allows insurance companies the ability to veto this necessary assignment of benefits by inserting a no-assignment clause into the insurance policy. Such a rule will have the effect of inhibiting corporate reorganization or sale.
Mergers, sales, and corporate restructurings are commonplace. They should not, in themselves, serve to destroy an insured’s rights to coverage for activities that occurred prior to the merger, sale, or other transaction. Yet this is what the majority concludes. By allowing insurers to veto the assignment of benefits for which coverage has been triggered, but for which a claim has not yet been brought, insurers can retain the premiums paid by the insured while escaping their coverage obligations.
An insurance contract is often an asymmetrical relationship: an insured will have fully performed, paying premiums to the insurer, long before the insurer is called on to perform at all. It makes no sense to say that any part of the insurer’s obligation is destroyed by transactions that have nothing to do with the insured-against events or the insurer’s obligations. If the injuries for which a claim is brought occur during the policy period, the insurer is obliged to cover the injury, and the insured has a right to recover benefits from the insurer. Any subsequent transfer of this right to recover has no effect on the insurer’s contractual obligations. An insurer should not be able to evade these responsibilities by inserting a no-assignment clause into the insurance contract. Unlike the majority, I adhere to the rule, recognized by courts of this and other states, that an insured can assign the right to recover for injuries occurring prior to the transfer without obtaining the consent of the insurer. Therefore, I dissent.