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Meet Your New Insured: Successors’Rights to Insurance Assets in Corporate

Transactionsby Tom Baker, John Buchanan,

and Marianna Horton1

h Tom Baker is the Connecticut Mutual Professor of Law andthe Director of the Insurance Law Center at the University of Con-necticut School of Law, in Hartford. John Buchanan is a partner,and Marianna Horton an associate, at Covington & Burling inWashington, D.C., where Mr. Buchanan has represented policy-holders in insurance coverage disputes for two-plus decades,where Ms. Horton practices in the firm’s corporate and insurancepractice groups, and where Prof. Baker started his career in insur-ance law. Prof. Baker and Mr. Buchanan spoke together on a paneltitled “Other People’s Insurance” at the March 2004 MidwinterMeeting of the Insurance Coverage Litigation Committee, in whichan earlier version of this article was presented.

I. Overview: the Transfer of a CorporatePredecessor’s Rights or Liabilities to a

SuccessorWith the resurgence of asbestos claims and the

persistence of environmental and other long-tailclaims, many corporate defendants in recent yearshave found the available limits in their own liabilityinsurance programs insufficient to cover their liabili-ties. In many instances these liabilities were inheritedfrom businesses acquired many years ago from otherentities, to which the current company has been heldto be a successor in interest. If such a successor

defendant is lucky enough to have retained or recov-ered evidence of its corporate predecessor’s liabilityinsurance program, it will naturally turn to thatsource for protection against the liabilities it hasinherited. In such cases, insurers will encounterclaims notices from companies that appear nowherein their customer lists, who nonetheless claim cover-age rights as corporate successors to the company’soriginal insureds.

These awkward encounters arise because, as anyreader of the business pages can attest, corporatestructures have become increasingly fluid over thelast forty or fifty years. In response to changes inmanufacturing and distribution processes, informa-tion technology and the financial markets, along withthe increasing globalization of the economy, leadingbusiness firms in the United States have regularlyrestructured their organizations, shedding businessesthat could be conducted more efficiently elsewhere,and acquiring businesses that could be conductedmore efficiently within the firm.

In broad outline, a business acquisition can bestructured as (1) a stock purchase, whereby theacquired corporation becomes a wholly owned sub-sidiary of the purchaser but otherwise retains itsseparate corporate existence; (2) a statutory merger,whereby the acquired corporation is merged with or

Published in Coverage, Volume 14, No.5, September/October 2004. © 2004 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form

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into the acquiring corporation and thus loses itsseparate corporate identity; or (3) an asset purchase,whereby a selling company transfers its assets to apurchaser, either in their entirety or in part (forexample, a division, plant, product line or otherbusiness unit).

“The typical stock purchase deal structureshould not present controversial issues in thecontext discussed here. There is literally nocorporate “predecessor” or “successor” if theacquired corporation simply continues its exis-tence with new shareholders. In transactionsstructured as statutory mergers or asset pur-chases, on the other hand, the predecessorfirm’s rights or liabilities, or both, may at leastpotentially pass to a separate successor entity.”

The stock purchase deal structure should nottypically present controversial issues in the contextdiscussed here. Absent additional assignment agree-ments, neither the liabilities nor the assets of acorporation transfer to another entity if only itsownership changes, while the corporation itself re-mains intact. Otherwise stated, there is literally nocorporate “predecessor” or “successor” if the ac-quired corporation simply continues its existencewith new shareholders. Thus, if the corporationpreviously possessed rights as an insured under aninsurance policy — either as the principal namedinsured or as a subsidiary of its former parent com-pany (defined as an “Insured” under many standardpolicy forms) — then it should retain its originalinsurance rights even after a change in its ownership,unless those rights are carved out and expresslyassigned back to the former parent company or tosome other entity.

In transactions structured as statutory mergers orasset purchases, on the other hand, the predecessorfirm’s rights or liabilities, or both, may at leastpotentially pass to a separate successor entity. Understate corporate merger statutes, both liabilities andrights of a predecessor corporation pass by law tothe resulting or surviving corporation, as discussedin Part II, below. In an asset purchase deal the buyerof assets is not liable for the seller’s pre-sale obliga-tions, as a general rule. There are, however, at leastfour recognized exceptions: (1) the buyer expresslyagrees to assume the seller’s obligations; (2) thetransaction amounts to a de facto merger of the buyerand the seller; (3) the buyer is effectively a continua-tion of the seller; and (4) the transaction is fraudu-lently concocted specifically to escape seller’s liabil-ity.2

In both merger transactions and asset purchase

transactions, therefore, a purchaser at least runs therisk of liability for post-sale claims alleging harmsattributable to the predecessor company’s pre-saleactivities. Accordingly, the purchaser may need toseek the protection of the predecessor’s insurancepolicies covering such activities — particularly itsolder, “occurrence”-based Comprehensive (or Com-mercial) General Liability (“CGL”) policies. Thepurchaser may seek the predecessor’s coverage eitherat the time of the purchase or afterwards, when aclaim is brought. As we discuss in Parts II and IIIbelow, a successor’s ability to tap the insurancecoverage of its predecessor may depend uponwhether the business was transferred by merger orby asset purchase; whether the successor expresslyagreed to assume liabilities by contract or whetherliabilities were imposed on it by law; whether thepredecessor expressly agreed to transfer insurancerights or whether the transfer is implied by law; andmost significantly when the covered loss for whichthe successor is seeking coverage is deemed to haveaccrued.3

Many historic standard-form policies contain aconsent-to-assignment provision, purporting to pre-clude the assignment of interest under the policywithout the consent of the insurer.4 In the past mostcourts have construed such provisions to allow as-signments of recovery rights under insurance policiesfor post-sale claims arising from pre-sale injury ordamage, even without the insurer’s consent, on theprinciple that once a covered loss has occurred, anassignment of the right to recover for that loss doesnot change the risk originally undertaken by theinsurer. As discussed in Part IV, below, however,the California Supreme Court’s decision in HenkelCorp. v. Hartford Accident and Indemnity Co.,5

appears to impose a more restrictive reading onconsent-to-assignment clauses than lawyers in manyasset purchase transactions may have previouslyassumed. The full implications of this decision areyet to be fully understood, but it has the potentialfor mischief in at least some types of corporaterestructurings.

II. Statutory and De Facto Mergers; Transferof Insurance Rights by Operation of Law

In the context of statutory mergers or consolida-tions, the surviving or resulting corporation inheritsall assets, liabilities and benefits of the acquiredpredecessor corporation by operation of the mergerstatute; no formal assignments or conveyances arenecessary.6 In spite of policy provisions requiringinsurer consent to assign, courts have held that thesurviving corporation assumes the predecessor cor-poration’s rights to claim insurance benefits for pre-merger losses without insurer consent. The apparent



purpose of consent-to-assignment clauses is to pro-tect an insurer against an increased risk of lossresulting from a change in policy ownership withoutthe insurer’s knowledge or control7 ; however, whendealing with merging corporations, the risk inher-ently remains unchanged, because the insurer wouldonly be liable on claims against the surviving corpo-ration that arose out of the covered acts of themerged corporation, the original insured.

A. Statutory MergersDecisions that have addressed the transfer of

insurance rights through statutory mergers includethe following:

● Knoll Pharmaceutical Co. v. Automobile Ins.Co. of Hartford (N.D. Ill. 2001).8 In Knoll, the courtrecognized that under Illinois law “a corporation thatmerges with another corporation assumes all obliga-tions and liabilities of the latter corporation.”9 A no-assignment clause in an insurance policy “does notaffect the transferability through statutory merg-er.”10 Once a merger is established, “the successorcorporation takes on the obligations and liabilitiesunder the insurance policies” as a matter of law, byoperation of the merger statute.11 In this case, thesurviving corporation first acquired various assets ofits predecessor (excluding insurance policies) andthen completed a statutory merger.12

● Travelers Ins. Co. v. Western Fire Ins. Co(Mont. 1985) (“ ‘inasmuch as the merger of corpora-tions results in the transfer of liabilities of the mergedcorporation . . . and also all of its rights, the logicalconclusion is that the surviving corporation . . .simply stands in the same position as that occupiedby the merged corporation . . . prior to the merger.Therefor [sic], inasmuch as [the surviving corpora-tion] is to be held responsible for the liability of [themerged corporation], it is entitled to the protectionwhich [the merged corporation] had (that is, its insur-ance with [the pre-merger insurer]) at the time ofthe accident, and that, as an asset of [the mergedcorporation], such coverage passed to . . . the sur-viving corporation.’ ”)13

● Brunswick Corp. v. St. Paul Fire and MarineIns. Co. (E.D. Pa. 1981) (applying Delaware, Mary-land or Pennsylvania law to refuse to enforce theconsent-to-assignment clause and finding insurersuffered no increased risk from the merger; in thiscase, the surviving corporation had first acquired allof the stock of the predecessor corporation andoperated it as a wholly-owned subsidiary for fiveyears before the merger).14

● Paxton v. Vierling Steel Co. v. Great Am. Ins.Co. (D. Neb. 1980) (finding that absent an increasein risk to the insurer, a court should not mechanicallyapply a no-assignment clause so as to cause aforfeiture of coverage as a result of a transfer througha statutory merger).15

● Imperial Enterprises, Inc. v. Fireman’s Fund

Ins. Co. (5th Cir. 1976) (“[T]he transfer of the policyto [the surviving corporation] occurred by operationof law . . . .”).16

● Chatham Corp. v. Argonaut Ins. Co. (N.Y.Supreme Ct., Nassau Cty. 1972) (insurance coverageis an asset that “automatically vested in” the surviv-ing corporation by operation of the merger statute).17

B. De Facto MergersA successor entity may also assume benefits under

a predecessor’s insurance policies by de factomerger. The following decisions have addressed defacto merger issues:

● Westoil Terminals Co. v. Harbor Ins. Co. (Cal.Ct. App. 1999).18 In this case, all the shareholdersof Westoil Corporation (a closely-held corporation)traded their shares for limited partnership interestsin Westoil Partnership. The predecessor corporationtransferred to the limited partnership all of its assets,causes of action, choses in action and “[a]ny and allother property of any kind or nature, tangible orintangible, wherever located, known or unknown.”19

There was no specific reference to insurance poli-cies.20 In return, the limited partnership assumed allthe liabilities of the corporation, and carried on thesame business operations as the corporation, whichwas then dissolved. When an environmental damageclaim was brought against the partnership, the part-nership sought coverage under policies issued to thepredecessor corporation. The court held that thesurviving partnership was entitled to such coveragebecause the change in the form of ownership, fromcorporation to limited partnership “with the sameoperations as before, under the same name, with thesame equity interests and under the same control”amounted to a de facto merger.21

● Federal Ins. Co. v. Purex Industries, Inc.(D.N.H. 1994).22 In this case the predecessor hadsold all its assets to a wholly owned subsidiary ofPurex, and this subsidiary corporation was subse-quently merged up and into Purex, which thenasserted rights under the predecessor’s policies onthe basis that the series of transactions was a de factomerger with the predecessor.23 While factual ques-tions precluded summary judgment, the court heldthat if Purex was “the surviving corporation of amerger transaction, it is true as a matter of law thatthe [predecessor’s] insurance policy . . . would havetransferred to Purex along with the other assets in-volved in the transaction absent a specific provisionin the policy to the contrary.”24

● General Accident Ins. Co. v. Superior Court(Cal. Ct. App. 1997) (remanding for considerationof successor’s de facto merger argument and recog-nizing that, if successful, it is a theory on which itmay “legitimately attempt to defeat” the insurer’ssummary judgment motion).25

● Quemetco, Inc. v. Pacific Automobile Ins. Co.(Cal. Ct. App. 1994) (although finding the sale ofassets at issue did not amount to a merger, the court



noted that merger “is an exception to the general ruleagainst imposing liability on the successor”).26

III. Asset PurchasesOutside the context of statutory or de facto merg-

ers, the courts have taken conflicting approaches indeciding whether a predecessor’s rights to seekinsurance benefits for pre-sale losses may transferto a successor by operation of law, or only byspecific agreement. Where the purchase and saleagreement in an asset transaction expressly andunambiguously assigns to the buyer the seller’sinsurance rights attaching to the seller’s pre-salelosses, most courts have upheld the intended transfer.A few courts, however, have held that insurers’consent-to-assignment clauses preclude the transferof such rights, absent the insurers’ consent.

A. Transfer of Insurance Rights by Operationof Law

1. Product-Line Successor Exception; NorthernInsurance and Progeny

One line of cases has held that if liability for apredecessor’s activities transfers to an asset pur-chaser, the benefits of the predecessor’s insurancepolicies also transfer to the successor by operationof law.

The leading decision in this line is NorthernInsurance Co. v. Allied Mutual Insurance Co.27 InNorthern Insurance, Brown-Forman bought Califor-nia Cooler, a beverage company, pursuant to an assetpurchase agreement. The trial court found that theasset purchase agreement did not assign the insur-ance benefits under the liability policy at issue, andthe agreement further specified that Brown-Formanwould assume no liability, and California Coolerwould instead indemnify Brown-Forman, for anyproduct liability claims arising from California Cool-er’s presale activities.28 Brown-Forman was subse-quently sued by the family of a child born with fetalalcohol syndrome and sought coverage for defensecosts from Northern Insurance, which had issuedpolicies to California Cooler in the months immedi-ately before the child’s birth.

The Ninth Circuit applied a rule of product-linesuccessor liability, under which, irrespective of anyprovisions to the contrary in the asset purchaseagreement, a purchaser of substantially all assets ofan entity assumes, by operation of law, “the obliga-tion for product liability claims arising from theselling firm’s presale activities.”29 Accordingly, thebenefits of California Cooler’s liability policy, in-cluding the right to a defense, transferred by opera-tion of law to Brown-Forman to the extent of cover-age for any presale occurrences.30 The right toindemnity “followed the liability rather than the

policy itself.”31 The court rejected two insurer argu-ments against the transfer, enforcement of the con-sent-to-assignment provision and increased defensecosts, respectively, finding: (1) the basis for honoringconsent-to-assignment clauses disappears when lia-bility arises from presale activity because “regardlessof any transfer the insurer still covers only the riskit evaluated when it wrote the policy,” and (2)substituting a different defendant would not substan-tially alter defense costs, as the “nature of the risk”originally insured remains the same.32

A few courts have extended the doctrine in North-ern Insurance beyond product-line successor liabil-ity, to environmental liability cases:

● Total Waste Management Corp. v. CommercialUnion Ins. Co. (D.N.H. 1994).33 In this case, theseller sold certain assets to the purchaser, but contin-ued its corporate existence after the asset sale. Thepurchaser was subsequently sued for presale envi-ronmental damages caused by seller, and soughtcoverage under seller’s policies. The federal districtcourt denied the insurer’s motion for summary judg-ment, finding there was a genuine issue of fact asto whether the purchaser was in fact liable as seller’ssuccessor.34 If the purchaser was determined to bethe successor, the purchaser would be entitled tocoverage under seller’s policies for presale losses byoperation of law.35

● B.S.B. Diversified Co. v. American MotoristsIns. Co. (W.D. Wash. 1996).36 In B.S.B., the courtheld that a transfer of all of seller’s assets relatingto a specific business unit, “whether tangible orintangible,” effectively assigned seller’s rights tocoverage for a chose in action for environmentaldamage.37 In the alternative, the court also held thatinsurance coverage passes to purchaser by operationof law in accordance with Northern Insurance,thereby extending the holding “to a successor re-sponsible for environmental cleanup where theevents creating liability occurred prior to transfer ofliability.”38

● Texaco A/S, S.A. v. Commercial Ins. Co.(S.D.N.Y. 1995) (citing Northern Insurance and find-ing that Texaco subsidiaries that acquired stock ofChevron subsidiaries were entitled to assert claimsunder Chevron policies for coverage for pre-acquisition environmental liabilities).39

Similarly, in Inamed Corp. v. Medmarc Cas. Ins.Co.,40 a pre-Henkel diversity case out of the CentralDistrict of California, the court followed NorthernInsurance in the context of breast implant liabilities.Denying the insurer’s summary judgment motion,the court there held that the insureds “created agenuine issue of fact that even absent a mergeragreement, Inamed would be liable for the Trilucentbreast implant claims” under the general rule ofsuccessor liability set forth in Northern Insurance,



with liability insurance rights following that liabil-ity.41

2. Limitation and Rejection of NorthernInsurance

A number of courts have rejected Northern Insur-ance’s transfer of insurance coverage by operationof law, holding that liability insurance rights do notinexorably follow tort liabilities. Such decisionsinclude the following:

● Quemetco, Inc. v. Pacific Auto. Ins. Co. (Cal.Ct. App. 1994)42 In Quemetco, the Second DistrictCalifornia Court of Appeal declined to apply North-ern Insurance in the context of a transferee’s CER-CLA liability. Because the successor was foundliable for hazardous waste clean up costs based ona law enacted after the asset sale, “unlike the situa-tion in Northern, no liability passed as a matter oflaw at the time of the asset sale as no such liabilityexisted at that time.”43 The right to collect theproceeds did not accrue until after the sale when thecleanup damages were assessed.44

● General Accident Ins. Co. v. Western MacArthurCo. (Cal. Ct. App. 1997)45 In General Accident, thecourt went significantly beyond Quemetco, rejectingNorthern Insurance and holding that a successorwho assumes tort liability by operation of law “isnot entitled by operation of law to the predecessor’sinsurance coverage.”46 In this case, Western MacAr-thur was found to be the successor corporation toWestern Asbestos Company for purposes of productliability, “and thus became liable in tort for injuriesarising from Western Asbestos’s [pre-transfer] distri-bution of asbestos products.”47 Emphasizing that the“insured-insurer relationship is a matter of contract”while “[s]uccessor liability is a matter of tort dutyand liability,” the court stated, “[i]t is one thing todeem the successor [ ] liable for the predecessor’storts; it is quite another to deem the successor [ ]a party to insurance contracts it never signed, andfor which it never paid a premium, and to deem theinsurer to be in a contractual relationship with astranger.”48

● Red Arrow Products Co. v. Employers Ins. ofWausau (Wis. Ct. App. 2000).49 Red Arrow Prod-ucts Company, a Delaware corporation, transferredand assigned certain of its assets and liabilities toNew Red Arrow, and then dissolved. The Wausaupolicies at issue were not included in the sale. CitingGeneral Accident as persuasive authority, the courtdisagreed with the Northern Insurance court’s “ex-tension of the product-line successor liability rule,a rule carved out under tort law, to a contractcase.”50 The court emphasized that the intent of thesuccessor liability rule, the protection of a personwho “cannot otherwise protect himself or herself froman injury arising from a product manufactured by acompany that no longer exists,” does not supportapplication of the rule in cases involving contractualinsurance relationships.51

● Glidden Co. v. Lumbermens Mut. Cas. Co. andMillennium Chems. Inc. v. Lumbermens Mut. Cas.Co. (Ohio Ct. Comm. Pleas 2002) (holding “[t]hecoverage of liability insurance does not automati-cally follow the assets purchased by a stranger tothe insurance policy” and rejecting the product linesuccessor liability doctrine in a transaction the courtdeemed to be an asset purchase wherein the insur-ance policies were excluded from the transferredassets).52

● Insurance Co. of North America v. SnyderMoving & Storage, Inc. (9th Cir. 2002) (recognizingthat a purchaser generally is not entitled to seller’sinsurance benefits by operation of law except inlimited product liability and environmental cases“where policy concerns support a finding of succes-sor liability”; the court further rejected NorthernInsurance’s imposition of successor liability on apurchaser “despite terms of the purchase agreementlimiting liability”).53

B. By Contractual AssignmentAs the decisions in the immediately preceding

discussion demonstrate, the parties to asset purchaseand sale agreements cannot necessarily rely upon“operation of law” to effect a transfer of liabilityinsurance rights corresponding to a transfer of liabili-ties. The better practice has been to address this issuein the transaction documents, expressly and unam-biguously. In the past, if the parties clearly articu-lated their intent to assign the predecessor’s liabilityinsurance rights as to losses arising from the pre-saleoperations of the predecessor, they could enjoy areasonable degree of confidence that the courtswould honor that intent. A few courts, however, haveheld that the consent-to-assignment clauses in insur-ance policies may trump even a clearly draftedpurchase and sale agreement; and with the Henkeldecision, the California Supreme Court has nowfollowed that minority line of case law.

1. Majority Rule: Consent-To-AssignmentClauses Inapplicable When Covered Loss

Occurs Before the Transfer or Sale of Assets

“In the past, if the parties clearly articulatedtheir intent to assign the predecessor’s liabilityinsurance rights as to losses arising from thepre-sale operations of the predecessor, theycould enjoy a reasonable degree of confidencethat the courts would honor that intent. A fewcourts, however, have held that the consent-to-assignment clauses in insurance policies maytrump even a clearly drafted purchase and saleagreement.”

As a general matter, consent-to-assignmentclauses are included in insurance policies to prevent



the expansion of the risk underwritten by the insurer.For example, if an insured neighborhood grocerystore were to assign its policy to a national supermar-ket chain during the policy period, it would exposethe insurer to a vastly broader risk of loss events(such as slip-and-falls or food contamination) thanit had originally agreed upon when pricing thepremium and entering into the insurance contract.

This rationale does not apply, however, to theassignment of a right to recover under the policy thathas already accrued from a prior covered loss-event.At that point the insured risk has been realized, andthe insurer’s obligation to pay the covered loss is notaltered by a change in the identity of the partyclaiming payment, as commentators have frequentlyobserved.54 Courts have refused to apply anti-assignment or consent-to-assignment clauses in thepost-loss context, in part to prevent an unfair wind-fall: otherwise the insurer would escape paying fora covered occurrence for which it had receivedpremiums from the original insured, merely becausethat insured happened to transfer its business toanother.

Among the many decisions adopting this reason-ing are the following:

● Guaranty Nat’l Ins. Co. v. McGuire (D. Kan.2002) (holding a policy’s prohibition against transfer“is inapplicable to the assignment of causes of actionthat come into existence after the loss has occurred,”and “can only prohibit assignment of policy cover-age, not assignment of an accrued cause of action”;insured assigned claims arising out of wrongfuldenial of insurance coverage).55

● Henning v. Cont’l Cas. Co. (11th Cir. 2001)(applying Georgia law to find an anti-assignmentclause invalid as to claims under the policy andpermitting assignee condominium resident to sue theassignor condominium association’s insurers to seekrecovery for the judgment she had obtained againstthe association for negligent failure to obtain properinsurance).56

● Conrad Bros. v. John Deere Ins. Co. (Iowa2001) (upholding an assignment of rights to replace-ment costs for property damage sustained prior tothe assignment and covered under a casualty insur-ance policy by the insured to a mortgagee; an anti-assignment clause “does not apply to the assignmentof claims arising after the loss”).57

● Peck v. Public Service Mut. Ins. Co. (D. Conn.2000) (stating “the non-assignment clause in this casecannot be applied to prohibit assignments after theloss has occurred and a judgment has been obtainedagainst the insured”; the plaintiff was a judgmentcreditor and subrogee of the insured under a Con-necticut direct action statute and further received awritten assignment from the insured of its rights un-der the policy).58

● Westoil Terminals Co. v. Harbor Ins. Co. (Cal.Ct. App. 1999) (employing an exception to enforce-ment of consent-to-assignment clauses “where a losshas already occurred”; successor held liable for tortscommitted by predecessor prior to assignment).59

● Mattingly v. Iowa Mut. Ins. Co. (D. Mont. 1999)(holding anti-assignment provisions generally do notprohibit assignments after loss because there is noincrease in the insurer’s risk).60

● Continental Cas. Co. v. Diversified Industries(E.D. Pa. 1995) (upholding assignment of insurancerights under liability policies without insurer’s con-sent in violation of consent-to-assignment clause forcoverage for remediation of environmental damagethat had been caused pre-sale by the original in-sured).61

● Imperial Enterprises, Inc. v. Fireman’s FundIns. Co. (5th Cir 1976) (“the no-assignment clauseshould not be applied ritualistically and mechani-cally to forfeit coverage”).62

● National Am. Ins. Co. v. Jamison Agency, Inc.(8th Cir. 1974) (the courts have not “slavishlyfollow[ed] the rule against assignments withoutconsent when the reason for that rule does not existin the particular situation”).63

● Travelers Indem. Co. v. Israel (2d Cir 1965)(holding effective an assignment without insurerconsent of the right to proceeds under a fire insur-ance policy after the loss on the insured’s propertyoccurred).64

Clearly, the determination of when a loss accrued— or as some courts have put it, when an insuredrisk became a “chose in action,” or a right to insur-ance recovery transferable to another — is a signifi-cant inquiry when addressing the application of aninsurer’s consent-to-assignment clause. Courts fol-lowing the majority rule define the relevant accrualof loss to occur at the time of injury or damage thattriggers coverage under the policy:

● Diversified Industries (“an insured’s right to pro-ceeds vests at the time of the loss giving rise to theinsurer’s liability”).65

● Conrad Bros. (“once the loss has triggered theliability provisions of the insurance policy, an as-signment is no longer regarded as a transfer of theactual policy,” but is instead “a transfer of a chosein action under the policy”; in this case, the assign-ment occurred after the loss — windstorm damageto the insured’s property).66

● Gopher Oil Co. v. American Hardware Mut. Ins.Co. (Minn. Ct. App. 1999) (holding the environmen-tal loss at issue occurred “at the time of contamina-tion, even [though] the claim [was] brought undersubsequently enacted legislation”).67

2. Strict Construction of Consent-to-AssignmentClauses Before Henkel

Even before the decision in Henkel Corp. v.



Hartford Accident and Indemnity Co., a minority ofcourts strictly construed consent-to-assignmentclauses in insurance policies:

● In Quemetco, the California intermediate appel-late court enforced the non-assignment clause basedon the “increased risk of having to defend twocorporations” with which insurers would otherwisebe faced.68 (In that case, the original insured pre-decessor corporation had been dissolved.69 Whileit apparently was revived only for the purpose ofdefending its former insurers’ declaratory judgmentaction, the court nonetheless found a sufficient threatof double defense duty in the possibility that thesuccessor company might claim indemnity againstthe original insured for the liabilities at issue.70 )The court further held that no loss or accrued rightto collect proceeds under the policies existed inconnection with environmental damage occurringduring the policy period until CERCLA was enactedyears later and damages thereunder were assessed.

● Ins. Co. of Pennsylvania v. Hutter (N.D. Tex.2001) (enforcing a consent-to-assignment provisionand invalidating an assignment without the insurer’sconsent despite the fact that the assignment occurredafter the property damage loss at issue).71

● Townsend v. Hartford Life Ins. (N.D. Ala. 1999)(invalidating an assignment by insured to plaintiffof insured’s right to receive annuity payments fromthe insurer thereunder, even though the assignmentoccurred after insured’s rights had been reduced toa right to proceeds).72

● Bunzl Pulp & Paper Sale, Inc. v. Golder (E.D.Pa. 1995) (stating in dicta that absent a merger, anon-assignment clause precludes assignments ofinsurance rights).73

The decisions in this minority line may gainenhanced stature now that the California SupremeCourt has chosen to adopt a similar resolution inHenkel, given the national prominence of that court.We discuss Henkel in more detail in the next section.

IV. Henkel and its Potential Impact

A. The Henkel Majority: Insurer ConsentRequired to Assign Insurance Benefits.

In Henkel Corp. v. Hartford Accident and Indem-nity Co.,74 the California Supreme Court held thatan insured’s successor-in-interest is not entitled tothe benefits of its predecessor’s insurance policiesto cover claims based on injuries sustained duringthe pre-acquisition policy period, absent the insurer’sconsent.75 In this case, the owner of the predecessorinsured (which was referred to as Amchem No. 1in the opinion) had placed that company’s twoproduct lines into two corporate entities in 1979:Amchem No. 1 assigned all the assets and liabilitiesof its metallic chemicals business to a newly formedsubsidiary corporation, Amchem No. 2, while retain-ing its other product line, agricultural chemicals.

After this initial asset transfer, which was conductedentirely within the Amchem corporate family, Hen-kel in 1980 purchased all the stock of Amchem No.2, which was then merged into Henkel. (AmchemNo. 1, consisting of the agricultural product line, wassimilarly sold and merged into its purchaser at a laterdate.)76 While the initial assignment agreementbetween Amchem No. 1 and Amchem No. 2 referredgenerally to “assets” and “liabilities,” it did notspecifically provide for the transfer of insurancebenefits.77

The intermediate appellate court, relying on theproduct-line successor rule expounded in NorthernInsurance, held that the right to indemnity “followedthe liability rather than the policy itself,” and thustransferred to the successor by operation of law.78

The supreme court rejected this conclusion, on theground that Amchem No. 2’s liability — and thusHenkel’s liability, as successor by merger to Am-chem No. 2 — “was not imposed involuntarily bylaw but assumed voluntarily by contract.”79 Accord-ingly, the court held that Henkel’s insurance rights“are defined and limited by that contract.”80

In making that determination, the court recognizedonly three situations where a purchaser of corporateassets may be liable for the torts of its predecessorby operation of law: (1) the purchaser of corporateassets may be liable as a corporate successor if: (a)the transaction amounts to a consolidation or merger,(b) the purchaser is a mere continuation of the seller,or (c) the transfer of assets to the purchaser is forthe fraudulent purpose of escaping liability for theseller’s debts; (2) a company that acquires anothercompany’s product line may be liable for injuriescaused by the predecessor’s defective products if theacquisition destroys a claimant’s remedies againstthe original manufacturer; and (3) certain statutes,including CERCLA, impose liability upon succes-sors without regard to contract.81

“On its actual facts, the holding of the Hen-kel case could have been confined to an unre-markable proposition: that in an asset pur-chase transaction where the liabilities do nottransfer by operation of law, and the insurancerights were not expressly assigned by contract,those insurance rights likewise will not bedeemed to transfer by operation of law.”

We note the court’s emphasis on the propositionthat the case involved contractual assumption ofliability, rather than involuntary imposition of liabil-ity by law. The court did not explicitly addresswhether insurer consent is required when successorliability is imposed by operation of law.82 Further-more, the trial court in the case had found, and it



was apparently undisputed on appeal, that the initialinternal asset transfer agreement between the twoAmchem entities failed to assign liability insurancebenefits to accompany the liabilities that were ex-pressly transferred.83 Thus, on its actual facts, theholding of the Henkel case could have been confinedto an unremarkable proposition: that in an assetpurchase transaction where the liabilities do nottransfer by operation of law, and the insurance rightswere not expressly assigned by contract, those insur-ance rights likewise will not be deemed to transferby operation of law.

In what was arguably obiter dictum, however, theHenkel majority proceeded to opine that even if thepredecessor had contractually assigned benefits un-der its liability policies to Henkel, “any such assign-ment would be invalid because it lacked the insurer’sconsent.”84 Severely limiting the long-standing ma-jority rule permitting post-loss assignments de-scribed above in Part III.B.1. — and without citationof authority to support the limitation — the Henkelcourt held that an assignment of an insurance benefitwithout the insurer’s consent is valid only when (1)“at the time of the assignment the benefit has beenreduced to a claim for money due or to become due,”or (2) “at the time of the assignment the insurer hasbreached a duty to the insured, and the assignmentis of a cause of action to recover damages for thatbreach.”85

The majority opinion concluded that it was reason-able to permit insurers to accept or reject assign-ments on the theory that a post-loss assignmentwithout the insurer’s consent would “place an addi-tional risk (or burden) on the insurer that it did notbargain to assume.”86 “An additional burden mayarise whenever the predecessor corporation stillexists or can be revived” after an asset transfer,“because of the ubiquitous potential for disputes overthe existence and scope of the assignment.”87 Giventhe chance that “both assignor and assignee [might]claim the right to defense,” “the insurer might effec-tively be forced to undertake the burden of defendingboth parties.”88 In fact the insurers faced no suchdual burden in that case, because the plaintiffs hadvoluntarily dismissed their original suit against thepredecessor; but the court found the mere theoreticalpotential for a dual burden of defense sufficient tojustify its conclusion.89

As of this writing, two additional decisions follow-ing Henkel have been found, including one thatextends Henkel’s result to circumstances where theunderlying liability has passed by operation of law:

● Associated Aviation Underwriters, Inc. v. PurexIndustries, Inc. (Cal. Ct. App. 2003)90 The Califor-nia intermediate appellate court had initially decidedthat although the insurer’s consent was not obtained

for an assignment of insurance benefits, “the casewas governed by the rule that the right to recoverunder a policy after a loss has occurred is an assetassignable separate from the policy and that after aloss, the policy can be assigned without insurerconsent.”91 The California Supreme Court subse-quently directed the lower court to vacate its decisionin light of Henkel,92 and reversed its earlier holding,finding that neither of the two Henkel exceptions tothe rule prohibiting assignment without insurer con-sent was present.93 In the alternative, the insuredscited Henkel for the proposition that insurer consentwas not required when liability was involuntarilyimposed (in this case by CERCLA) on a successoras a matter of law.94 The court rejected this argu-ment, first observing that Henkel did not reach thisissue, and then relying on earlier California appellatedecisions in General Accident95 and Quemetco96 toreject outright the viability of any transfer of insur-ance by operation of law, regardless of insurerconsent, in the CERCLA context.97 Notably, Purexalso cited Henkel for the reasonableness of enforcinga consent-to-assignment clause, based on the poten-tial “additional burdens” on the insurer that mayarise.98 It appears that this decision was notappealed.

● Century Indem. Co. v. Aero-Motive Co. (W.D.Mich. 2003)99 In Aero-Motive, the successor assumedthe assets of the predecessor through a series of trans-actions. Subsequently, the successor was sued forenvironmental damage caused by the predecessorduring the period covered by the insurer’s compre-hensive general liability policies. The successor thenfiled suit against the predecessor’s insurer for recov-ery of clean-up costs. As in Purex, the successorargued for transfer of insurance benefits by operationof law based on the Northern Insurance product-linesuccessor theory, and the court, in a matter of firstimpression, and relying on General Accident,100

Red Arrow,101 and Glidden102 as persuasive author-ities, rejected the viability of a transfer of insurancerights by operation of law in that context. In thealternative, the successor argued that the predecessorhad expressly assigned the insurance rights to it bycontract. The federal district court acknowledgedthat Michigan employed a post-loss assignmentexception to the enforceability of insurer consent-to-assignment provisions; however, the court held theloss at issue did not occur prior to assignment of thepolicies because the damages associated with theenvironmental cleanup were not assessed until longafter the asset sale, and “an insurer’s responsibilityunder a liability policy accrues at the time thecomplainant suffers damage rather than at the timeof the negligent act.”103 The court cited Henkel forits narrow definition of an accrued cause of action,but relied more substantially on the California appel-late court’s holding in Quemetco104 regarding ac-crual of causes of action under environmental stat-utes. The court also cited Henkel for the potentiallyincreased risk to which an insurer would be subject



if an insured was permitted to assign its policybenefits without the insurer’s consent.105

B. The Henkel Dissent; Critique of the HenkelRule

Asserting that the “majority’s decision is contraryto well-settled law and provides an unfair windfallto insurers,”106 Justice Moreno’s dissent in Henkelsets out an extensive five-point critique of the major-ity opinion. We discuss and elaborate further uponthese points below.107

1. Constricted Conception of “Chose in Action”Quoting Couch on Insurance for the rule that an

“assignment is valid following occurrence of the lossinsured against and is then regarded as chose inaction rather than transfer of actual policy,”108 thedissent cited authority extending over 40 years, bothin California and elsewhere, supporting that rule.109

The majority “narrows this long-standing rule per-mitting assignment after the occurrence of a loss bystating that assignment is only valid when a claimagainst the policy has been ‘reduced to a sum ofmoney due or to become due under the policy.’ ”110

Notably, the majority’s decision also leaves uncer-tain whether a pending liability insurance claimcould be assigned without the insurer’s consent.

The Henkel majority’s restricted reading deriveseither from a misunderstanding of the concept of achose in action, or from an effort to redefine thatconcept sub silentio. According to the CaliforniaCivil Code, a chose in action is much broader thana liquidated amount due: it is “a right to recovermoney or other personal property by a judicialproceeding.”111 Contrary to the implication in theHenkel majority opinion, these definitions do notrequire that a claim actually have been filed, muchless have already resulted in a judicial determination,for a chose in action to exist.112 As indicated above,the majority opinion cited no prior authority ex-pressly imposing these restrictions upon the con-cept.113 Thus, as one commentator has put it:

“Although the Henkel court does not admit it, it hasdramatically changed the law in this regard. In moststates, assignment is permitted after loss even if therehas been no such reduction to judgment or a sumcertain. In California prior to Henkel, there alsoappears to have been no such requirement. Thus, theCalifornia Supreme Court appears to have alteredwithout notice its own ground rules on assignmentand was not merely articulating a California alter-ation of the general rule.”114

2. Frustration of the Purpose of Occurrence-Based Liability Policies

As the Henkel dissent pointed out, “an insurer’scoverage liability under an occurrence-based policyis determined as of the date of the claimant’s loss

or injury, irrespective of when the claim is assertedand reduced to a monetary sum.”115 One of theprimary benefits – and key selling points – of occur-rence-based liability insurance is that it provideslasting protection for so-called incurred but notreported (“IBNR”) losses. An IBNR loss is oneallegedly incurred due to the insured’s activitiesduring the policy period, but not revealed or reportedto the insured as a liability claim until later — inmany cases, not until years or decades later. Thisprotection against future claims arising from IBNRlosses is fundamental to occurrence coverage. It iswhat renders it preferable to (and more expensivethan) claims-made coverage, which is triggered onlyby claims that are asserted during the policy period.

Requiring an insured to obtain the consent of eachinsurer that ever issued a liability policy to it — evenif it could track them all down — is fundamentallyinconsistent with occurrence coverage, because itpermits the insurer to re-underwrite its policy longafter the end of the policy period. In the interim, therisk of IBNR claims that the insurer originallyundertook, and for which it charged a premium whenit issued the policy, may have materialized in theform of reported claims against the original insured.Faced with a request for consent to such a transfer,an insurer that has been off the risk for many yearswill likely deny the request out of hand or demandconsideration for its consent.116 It may base the pricethat it will charge for that consent not only on itsperception of IBNR liabilities on the near horizon(risks that it can assess far more accurately with thepassage of time since the policies were first under-written), but also on a hindsight assessment of theclaims that have actually arisen since the end of thepolicy period. To the extent that certain categoriesof claims have become so inevitable as to be uninsur-able, they will likely be carved out of any consentto future protection for the successor insured. Ineffect, therefore, the insurer will have the opportu-nity to demand a second, claims-made insurancepremium on top of the occurrence premium it hasalready received, while narrowing the scope of theprotection it originally agreed to provide.

3. Misplaced Concerns Regarding Increase inInsurer Risk

The Henkel dissent also disputed the majority’spremise that insurers’ risks increase with any assign-ment of insurance benefits to corporate successors:“When the loss occurs before the transfer, however,the characteristics of the successor are of littleimportance: regardless of any transfer the insurer stillcovers only the risk it evaluated when it wrote thepolicy.”117 As for the majority’s solicitude for insur-ers’ defense burden, the dissent pointed out that“[t]he extent and character of the defense will turn



on the nature of the [original insured’s] product itselfand the attributes of the firm that manufactured theproduct,” not the attributes of the successor.118 Tothe extent that a successor happens to be less cooper-ative than the original insured, the insurer is pro-tected by the cooperation condition in its policies.119

The majority’s professed concern that both thenew owner and the former owner of a business willdemand a defense, while superficially appealing, isfundamentally misguided in at least four respects.

First, it assumes to be universal a fact pattern thatis relatively unusual as a practical matter: namely,that both predecessor and successor will be calledupon to defend the same underlying claims. As theunderlying tort litigation against Henkel illustrates,it is seldom in any party’s interest to keep bothpredecessor and successor as defendants, when theformer has clearly assigned its liabilities to thelatter.120 But even if both companies somehow endup as defendants in the same underlying litigation,when a predecessor has expressly assigned its policyrights to a successor then “the insurer’s legal obliga-tions would run only to the successor,” not to bothentities.121 If the assignment is disputed, then theinsurer can seek declaratory relief to clarify whichparty it must defend.122

Second, the Henkel majority appears to havemistakenly assumed that insurers would never owedefense obligations to multiple insureds, but for theassignment of insurance benefits. To the contrary,this is a risk inherent in standard CGL policy forms,which have for decades included corporate officersand directors along with the insured corporation inthe standard definition of “persons insured”,123 andwhich also commonly have included all of the princi-pal named insured’s corporate subsidiaries as in-sureds, either by endorsement or by designation inthe declarations. Also common are endorsementsgranting additional insured status to vendors or otherentities with commercial ties to the principal namedinsured.124 The risk of multiple and even conflictingdefense obligations to two or more insureds oradditional insureds is well-recognized in the insur-ance industry,125 and it is inherent in the policiesthat insurers have written on a daily basis for dec-ades. Thus, even if one accepts the premise thatassignment of policy rights through asset purchasetransactions carries some risk that multiple insuredswill seek coverage, this is not a qualitatively newor unfamiliar risk for insurers.

Third, the multiplication-of-burden argument il-logically starts the analysis of this issue with the“duty to defend” rather than the “duty to indemnify,”despite the fact that insurers’ defense obligations arederived from their indemnification obligations. Asthe “insuring agreement” section in standard-form

CGL occurrence policies makes clear, an insurermakes two distinct promises when it issues an occur-rence policy: to indemnify the insured for suitsarising out of injury that occurs during the policyperiod; and to defend the insured against all suits thatare based on facts and theories that, if true, wouldresult in claims that the insurer is obligated toindemnify.126 This second promise, the “duty todefend,” is secondary and analytically derived fromthe duty to indemnify. The risks associated with theduty to indemnify depend on two factors: the harmcaused during the coverage period of the applicableinsurance policy and the fault of the insured at thetime of the harm. Those two things could not possi-bly be affected by the later transfer of any insurancerights arising from IBNR losses.

Fourth, the multiplication-of-burden argument as-sumes the very legal conclusion that it is then usedto support. The sale of the business unit increasedthe risk of defense costs only if that risk was notalready inherent in selling a company-wide policyto an organization composed of multiple businessunits. The only way that risk would not already havebeen inherent in selling that policy was if the insurerhad the right to require consent (and perhaps asecond premium) should the organization wish to selloff a business unit. In other words, the conclusionthat the sale of the business unit “increased the risk”of the defense costs turns out to depend entirely onthe assumption that an organization cannot sell offthe assets and liabilities of a business unit withoutthe permission of its insurance company. In thisrespect, the majority’s reasoning in Henkel is circu-lar. Its logic will parse only by inferring an unwrittencondition in standard policies that few large organi-zations would find commercially acceptable.

4. Windfall For Insurers; Forfeiture forInsureds

If Amchem No. 1, the original insured corporationin Henkel, had never spun off its metallic chemicalproduct line for ultimate sale to Henkel, then Am-chem No. 1, not Henkel, would have been the objectof claims alleging injury during the policy period;and there would have been no dispute that theinsurers owed it coverage for those claims (barringother unrelated coverage defenses). Similarly, ifAmchem No. 1 had spun off the assets of the metallicchemical business but expressly retained all itsliabilities, then there would be little dispute that itsinsurers owed coverage once the claimants identifiedand sued Amchem No. 1 or its successor. Or, ifAmchem’s internal restructuring had happened toassign its other product line to the newly createdAmchem No. 2 and to retain the metallic chemicalline in Amchem No. 1, instead of vice versa, thenagain there would have been no valid issue of



insurance successorship for Henkel: Amchem No.1’s original rights would have passed to Henkelalong the uncontroversial path of a stock purchaseagreement followed by a statutory merger.127

Under the rule of Henkel and its progeny, how-ever, a corporate reorganization that happens toinvolve the wrong combination of ingredients per-mits the insurers to escape, or to charge a secondpremium for, an obligation that they would otherwisestraightforwardly owe, for policy limits that maytotal millions or even billions of dollars. As theHenkel dissent put it, “[t]he insurers in this case hadreceived premiums to insure against these types ofinjuries. Yet under the majority’s holding, the insur-ers will owe no coverage to any party for a risk theypromised to insure against and for which they werepaid an agreed premium.”128

The inherent capriciousness of the Henkel out-come perhaps explains why the majority of courtsto date have striven to read both insurance contractsand corporate transaction agreements in a way thatfurthers the public policy against forfeitures. In effectthey have applied a “default rule” of constructionthat preserves the original alignment between IBNRinsurance benefits and IBNR liabilities in the saleof corporate assets. A “default rule” is a contractterm that applies unless the parties to the contractclearly specify to the contrary; it provides a templatefor interpreting contractual silence with regard to thatissue.129 Because IBNR insurance benefits are valu-able to the entity with the IBNR liability, and virtu-ally worthless to the entity that has disposed of thatliability, parties to the sale of business assets weretraditionally presumed to have intended to disposeof these rights and liabilities together, in order toretain the protection purchased by the original in-sured. This presumptive intent is thwarted by therestrictive construction the Henkel majority appliedto insurance consent-to-assignment clauses.

5. Restrictions on Corporate RestructuringMethods; Public Policy Concerns.

Corporate restructurings “should not, in them-selves, serve to destroy an insured’s rights to cover-age for activities that occurred prior to the merger,sale, or other transaction.”130 The widespread adop-tion of Henkel and its progeny,131 however, coulddisrupt settled expectations in thousands of asset saletransactions already completed, where buyers havenegotiated to acquire their predecessors’ insurancebenefits attaching to the IBNR liabilities acquired inthe deal. These buyers would be left with potentialuninsured liabilities that could be financially devas-tating to a company whose only fault was relianceon settled industry practice and well-established caselaw.132

Prospectively, the Henkel resolution poses a

serious impediment to at least one common form ofrestructuring transaction: the disposition of a productline through an asset purchase deal structure, wherethe seller seeks to exit a business and to transfer tothe buyer both the liabilities and the liability insur-ance rights associated with that business. ThereHenkel would require sellers to seek consent toassignment of insurance rights from insurers poten-tially numbering in the dozens, on policies poten-tially stretching back for decades. Even attemptingto approach these insurers could jeopardize both thetimetable and the confidentiality of the proposeddivestiture.133 It will also place insurers in a positionto veto the transaction by withholding their consentto assignment — or in the case of an unscrupulousinsurer, to extract whatever “M&A premium” theparties are willing to pay to permit their transactionto go forward as planned. In effect, the bargainingpower of sellers seeking to transfer liabilities tobuyers will be diminished, while buyers will havea strengthened hand in forcing sellers to retain theliabilities (along with their liability insurance rights)attaching to their discontinued lines of business.

“Tactical considerations of insurance lawmay now be injected into internal corporate re-structurings, potentially conflicting with thevalid business and financial considerationsthat otherwise ought to govern such transac-tions.”

It also bears emphasis that the insurance rights inHenkel were technically forfeited in a purely intra-corporate asset transaction, when Amchem No. 1transferred its metallic chemical business to its ownsubsidiary Amchem No. 2.134 Although the timingof the subsequent sale of Amchem No. 2 to Henkelsuggests that this initial internal transaction antici-pated a third-party sale, nothing in the Henkel major-ity opinion necessarily confines its impact to externaltransactions. Internal transfers of assets and liabilitiesamong commonly owned entities occur often, for awide variety of valid business purposes, such as taxbenefits or the insulation of the parent from liabili-ties. In and of itself an assignment of insurance rightswithin the same corporate family — e.g., from theoriginal named insured to its newly formed subsid-iary — cannot plausibly effect a change in the riskinsured. Nonetheless, insurers may now be expectedto argue that any such internal transfer triggers theirconsent-to-assignment clauses. Even in jurisdictionsthat follow the traditional rule requiring a truechange in the risk before consent is required, insurerssensitized by Henkel may now subject past internalcorporate asset transfer agreements or resolutions toenhanced scrutiny, to determine whether an intent



to transfer insurance rights along with physical assetswas expressed with adequate clarity. Thus tacticalconsiderations of insurance law may now be injectedinto internal corporate restructurings, potentiallyconflicting with the valid business and financialconsiderations that otherwise ought to govern suchtransactions.

Neither public policy nor rational corporate gover-nance is well served by an insurance law regime thatlimits or distorts insureds’ corporate restructuringdecisions. Nor is fundamental fairness served byplacing insurers in a position to disrupt corporatereorganizations that do not affect the substantiverisks they have underwritten. The Northern Insur-ance rule discussed above in Part III.A.1. and thetraditional majority rule discussed in Part III.B.1.neither favor nor disfavor any particular form ofcorporate restructuring. They permit the parties inasset purchase deals to preserve the same alignmentof IBNR liabilities and IBNR insurance rights thatwould occur in a stock purchase deal or in a statutorymerger — at least if the parties express their inten-tions clearly.

V. ConclusionCorporate successors seeking inherited coverage

for inherited liabilities may argue persuasively out-side California that the Henkel decision is flawed inits underlying factual assumptions, in its applicationof established legal rules, and in its public policyimplications. Nonetheless, if Henkel and its progeny,such as Purex135 and Aero-Motive,136 should markthe start of a trend away from the traditional rules,all businesses will need to reexamine both theirinsurance purchasing practices and the structures oftheir corporate transactions going forward. Lookingbackward, however, is another matter: it is difficultto revise past asset purchase transactions after thefact. Risk and financial managers who are nowrelying upon corporate predecessors’ expressly as-signed liability insurance rights to cover their as-sumed IBNR liabilities may now need to consideralternative funding mechanisms, in case those rightsprove to have been forfeited — despite all the bestefforts of their corporate transaction lawyers topreserve them.

1 Prior versions of this article were presented at the Mealey’s Additional Insured Conference, which was co-chaired by Mr. Buchanan, on May25, 2004; and at the Annual Meeting of the Insurance Coverage Litigation Committee on March 5, 2004. The views expressed herein are those ofthe authors and are not to be attributed to their respective employers or clients.

2 See, e.g., Red Arrow Prods. Co. v. Employers Ins. of Wausau, 607 N.W.2d 294, 300 n.3 (Wis. Ct. App. 2000).3 Although outside the scope of this discussion, the converse situation should be noted: when a purchasing company claims under its own pre-

acquisition insurance coverage for the acquired entity’s pre-acquisition loss. This situation may arise when a surviving corporation in a merger seeksto tap its own coverage for pre-merger loss of the acquired corporation, or a parent corporation seeks to tap its own coverage for a pre-acquisitionloss of a newly-acquired subsidiary. The literal terms of many standard-form “occurrence”-based CGL policies would seem to provide pre-acquisitioncoverage for the acquired entity, since the policies are triggered by “injury” or “property damage” during the policy period, without specifying whichentity must directly cause such harm. Further, the definition of “named insured” typically includes the “[insured] and/or its subsidiary, associated,and affiliated companies or owned and controlled companies as now existing or hereinafter constituted.” Most courts, however, have rejected the theorythat “hereinafter constituted” means that a company acquired after the policy period becomes a “named insured” for losses during the policy period,reasoning that “hereinafter constituted” extends coverage only to those companies acquired before the expiration of the policy period. See Total WasteMgmt. Corp. v. Commercial Union Ins. Co., 857 F. Supp. 140, 150 (D.N.H. 1994) (holding the successor’s policies “do not provide coverage foran entity which was acquired by the named insured after the expiration of the policies and which entity allegedly caused damage [ ] during the policies’periods”); see also Armstrong World Indus. v. Aetna Cas. & Sur. Co., 45 Cal. App. 4th 1, 75–76, 80, 52 Cal. Rptr. 2d 690, 723, 726 ( 1996) (holdingthe policies did not provide coverage for the acts of the merged company prior to the merger and stating “a corporate acquisition taking place afterthe policy has expired can have no retroactive effect on the identity of the named insured during the policy period”); Caterpillar, Inc. v. Aetna Cas.& Sur. Co., 668 N.E.2d 1152 (Ill. App. Ct. 1996). See generally Michael A. Kotula & Gary D. Centola, After-Acquired and After-Involved Liabilitiesin Insurance Coverage Disputes, 12-9 Mealey’s Litig. Rep. Ins. 8 (Jan. 6, 1998).

4 For example, the 1973 standard CGL form contains the following condition:

“Assignment of interest under this policy shall not bind the company until its consent is endorsed hereon; if, however, the named insured shalldie, such insurance as is afforded by this policy shall apply (1) to the named insured’s legal representative, as the named insured, but only whileacting within the scope of his duties as such, and (2) with respect to the property of the named insured, to the person having proper temporarycustody thereof, as insured, but only until the appointment and qualification of the legal representative.’ ”

Insurance Services Office, 1973 CGL Policy Jacket Specimen, Cond. 9., reprinted in International Risk Management Institute (hereinafter “IRMI”),COMMERCIAL LIABILITY INSURANCE at IV.T.15, 18 (1990) (also accessible online at www.irmionline.com/NXT/gateway.dll?f4templates$fn4default.htm).

5 Henkel Corp. v. Hartford Accident and Indemnity Co., 62 P.3d 69 (Cal. 2003).6 See, e.g., Del. Code Ann. tit. 8, § 259(a), which provides in pertinent part that “the rights, privileges, powers and franchises of each of said [merging]

corporations, and all property, real, personal and mixed, and all debts due to any of said constituent corporations on whatever account, as well forstock subscriptions as all other things in action or belonging to each of such corporations shall be vested in the corporation surviving or resultingfrom such merger or consolidation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter aseffectually the property of the surviving or resulting corporation as they were of the several and respective constituent corporations.”

7 See, e.g., Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627, 631 (Cal. Ct. App. 1994).8 Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 167 F. Supp. 2d 1004 (N.D. Ill. 2001).9 Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 167 F. Supp. 2d 1004, 1010 (N.D. Ill. 2001).10 Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 167 F. Supp. 2d 1004, 1010 n.7 (N.D. Ill. 2001).



11 Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 167 F. Supp. 2d 1004, 1010–11 (N.D. Ill. 2001).12 See Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 167 F. Supp. 2d 1004, 1006 (N.D. Ill. 2001).13 Travelers Ins. Co. v. Western Fire Ins. Co., 709 P.2d 639, 641 (Mont. 1985) (quoting Aetna Life and Casualty v. United Pacific Reliance Insurance

Companies, 580 P.2d 230, 232 (Utah 1978)).14 Brunswick Corp. v. St. Paul Fire and Marine Ins. Co., 509 F. Supp. 750, 752–53 (E.D. Pa. 1981).15 Paxton v. Vierling Steel Co. v. Great Am. Ins. Co., 497 F. Supp. 573, 578 (D. Neb. 1980).16 Imperial Enters., Inc. v. Fireman’s Fund Ins. Co., 535 F.2d 287, 292 (5th Cir. 1976).17 Chatham Corp. v. Argonaut Ins. Co., 334 N.Y.S.2d 959, 961 (N.Y. Supreme Ct., Nassau Cty. 1972).18 Westoil Terminals Co. v. Harbor Ins. Co., 86 Cal. Rptr. 2d 636 (Cal. Ct. App. 1999).19 Westoil Terminals Co. v. Harbor Ins. Co., 86 Cal. Rptr. 2d 636, 637 (Cal. Ct. App. 1999).20 See Westoil Terminals Co. v. Harbor Ins. Co., 86 Cal. Rptr. 2d 636, 637 (Cal. Ct. App. 1999).21 Westoil Terminals Co. v. Harbor Ins. Co., 86 Cal. Rptr. 2d 636, 639 (Cal. Ct. App. 1999).22 Federal Ins. Co. v. Purex Indus., Inc., 972 Fed. Supp. 872 (D.N.H. 1994).23 Federal Ins. Co. v. Purex Indus., Inc., 972 Fed. Supp. 872, 889–90 (D.N.H. 1994).24 Federal Ins. Co. v. Purex Indus., Inc., 972 Fed. Supp. 872, 890 (D.N.H. 1994).25 General Accident Ins. Co. v. Superior Court, 64 Cal. Rptr. 2d 781, 788 (Cal. Ct. App. 1997).26 Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627, 630–31 (Cal. Ct. App. 1994).27 Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353 (9th Cir. 1992).28 See Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353, 1357 (9th Cir. 1992).29 See Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353, 1357 (9th Cir. 1992).30 See Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353, 1358 (9th Cir. 1992).31 See Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353, 1357 (9th Cir. 1992).32 See Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353, 1358 (9th Cir. 1992).33 Total Waste Management Corp. v. Commercial Union Ins. Co., 857 F. Supp. 140 (D.N.H. 1994).34 See Total Waste Management Corp. v. Commercial Union Ins. Co., 857 F. Supp. 140, 152 (D.N.H. 1994).35 See Total Waste Management Corp. v. Commercial Union Ins. Co., 857 F. Supp. 140, 152 (D.N.H. 1994).36 B.S.B. Diversified Co.. v. American Motorists Ins. Co., 947 F. Supp. 1476 (W.D. Wash. 1996).37 See B.S.B. Diversified Co. v. American Motorists Ins. Co., 947 F. Supp. 1476, 1480 (W.D. Wash. 1996).38 B.S.B. Diversified Co. v. American Motorists Ins. Co., 947 F. Supp. 1476, 1481 (W.D. Wash. 1996).39 Texaco A/S, S.A. v. Commercial Ins. Co., No. 90 CIV. 2722, 1995 U.S. Dist. LEXIS 628997, at *6 (S.D.N.Y. Oct. 26, 1995), vacated on other

grounds, 160 F.3d 124 (2d Cir. 1998).40 Inamed Corp. v. Medmarc Cas. Ins. Co., 258 F. Supp. 2d 1117 (C.D. Cal. 2002).41 Inamed Corp. v. Medmarc Cas. Ins. Co., 258 F. Supp. 2d 1117, 1126 (C.D. Cal. 2002).42 Quemetco, Inc. v. Pacific Auto. Ins. Co., 29 Cal. Rptr. 2d 627 (Cal. Ct. App. 1994).43 Quemetco, Inc. v. Pacific Auto. Ins. Co., 29 Cal. Rptr. 2d 627, 631 (Cal. Ct. App. 1994).44 See Quemetco, Inc. v. Pacific Auto. Ins. Co., 29 Cal. Rptr. 2d 627, 632 (Cal. Ct. App. 1994).45 General Accident Ins. Co. v. Western MacArthur Co., 64 Cal. Rptr. 2d 781 (Cal. Ct. App. 1997).46 General Accident Ins. Co. v. Western MacArthur Co., 64 Cal. Rptr. 2d 781, 782 (Cal. Ct. App. 1997).47 See General Accident Ins. Co. v. Western MacArthur Co., 64 Cal. Rptr. 2d 781, 782 (Cal. Ct. App. 1997).48 General Accident Ins. Co. v. Western MacArthur Co., 64 Cal. Rptr. 2d 781, 785 (Cal. Ct. App. 1997).49 Red Arrow Products Co. v. Employers Ins. of Wausau, 607 N.W.2d 294 (Wis. Ct. App. 2000).50 Red Arrow Products Co. v. Employers Ins. of Wausau, 607 N.W.2d 294, 302 (Wis. Ct. App. 2000).51 Red Arrow Products Co. v. Employers Ins. of Wausau, 607 N.W.2d 294, 302 (Wis. Ct. App. 2000).52 Glidden Co. v. Lumbermens Mut. Cas. Co., No. 409039, and Millennium Chems. Inc. v. Lumbermens Mut. Cas. Co., No. 411388 (Ohio Ct.

C.P. Cuyahoga County May 8, 2002), as reprinted in 16–27 Mealey’s Litig. Report: Ins. 8 (May 21, 2002).53 Insurance Co. of North America v. Snyder Moving & Storage, Inc., No. 01-15975, 2002 U.S. App. LEXIS 25173, at *14–15 (9th Cir. Dec.

6, 2002) (unpublished decision).54 See, e.g., 3 Lee R. Russ & Thomas F. Segalla, COUCH ON INSURANCE § 35:7 (3rd ed. 2003) (“[T]he [consent-to-assignment] clause by its own

terms ordinarily prohibits merely the assignment of the policy, as distinguished from a claim arising thereunder, and the assignment before loss involvesa transfer of a contractual relationship while the assignment after loss is the transfer of a right to a money claim.”) (collecting case law in omittedinternal notes 29–31.1); Jeffrey W. Stempel,. LAW OF INSURANCE CONTRACT DISPUTES § 3.15[c], at 3-106 (2004 Supp.) (“[O]nce a loss has occurred,the insured may usually assign the right to collect under the policy without restriction since a post-loss assignment does not implicate the adverseselection and moral hazard concerns prompting pre-loss restrictions on assignability.”) (footnote collecting authorities omitted);. David M. Smith, SuddenExposure: Accessing Historic Insurance Policies for the Environmental Liabilities Associated With Newly Acquired Properties or Operations, 25ECOLOGY L. Q. 439, 458 at n. 66 (1998) (the rationale for no-assignment clauses does not apply once a covered loss has occurred).

55 Guaranty Nat’l Ins. Co. v. McGuire, 192 F. Supp. 2d 1204, 1208 (D. Kan. 2002).56 Henning v. Cont’l Cas. Co., 254 F.3d 1291, 1293–94 (11th Cir. 2001).57 Conrad Bros. v. John Deere Ins. Co., 640 N.W.2d 231, 237–38 (Iowa 2001).58 Peck v. Public Service Mut. Ins. Co., 114 F. Supp. 2d 51, 56 (D. Conn. 2000).



59 Westoil Terminals Co. v. Harbor Ins. Co., 86 Cal. Rptr. 2d 636, 640 (Cal. Ct. App. 1999).60 Mattingly v. Iowa Mut. Ins. Co., CV 97-47-H-CCL, 1999 U.S. Dist. LEXIS 20622, at *6–7 (D. Mont. Sept. 15, 1999).61 Continental Cas. Co. v. Diversified Indus., 884 F. Supp. 937, 945–48 (E.D. Pa. 1995).62 Imperial Ent., Inc. v. Fireman’s Fund Ins. Co., 535 F.2d 287, 293 (5th Cir 1976).63 National Am. Ins. Co. v. Jamison Agency, Inc., 501 F.2d 1125, 1130 (8th Cir. 1974).64 Travelers Indem. Co. v. Israel, 354 F.2d 488, 490 (2d Cir 1965).65 Continental Cas. Co. v. Diversified Indus., 884 F. Supp. 937, 946 (E.D. Pa. 1995).66 Conrad Bros. v. John Deere Ins. Co., 640 N.W.2d 231, 237–38 (Iowa 2001).67 Gopher Oil Co. v. American Hardware Mut. Ins. Co., 588 N.W.2d 756, 764 (Minn. Ct. App. 1999).68 Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627, 632 (Cal. Ct. App. 1994).69 See Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627, 628 (Cal. Ct. App. 1994).70 Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627, 632 (Cal. Ct. App. 1994).71 Ins. Co. of Pennsylvania v. Hutter, No. 4:98-CV-1063-E, 2001 U.S. Dist. LEXIS 5800, at *17–18 (N.D. Tex. Feb. 27, 2001).72 Townsend v. Hartford Life Ins., Civ. No. 97-C-3232-W, 1999 U.S. Dist. LEXIS 21783 (N.D. Ala. June 30, 1999).73 Bunzl Pulp & Paper Sale, Inc. v. Golder, No. Civ. A. 90-4303, 1995 U.S. Dist. LEXIS 11699, at *3 n.1 (E.D. Pa. Mar. 2, 1995).74 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69(Cal. 2003).75 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 74 (Cal. 2003).76 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 72–73 (Cal. 2003).77 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 71–72 (Cal. 2003).78 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 73 (Cal. 2003).79 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 73 (Cal. 2003).80 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 74 (Cal. 2003).81 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 73–74 (Cal. 2003).82 See generally CALIFORNIA INSURANCE LAW HANDBOOK § 44:2.1 (2004 ed.) (“The critical question is whether the court will take a similarly

broad view of the enforceability of anti-assignment clauses when faced with a case in which liability was imposed on the successor by operation oflaw and the potential for conflicting duties to the predecessor and successor corporation is not present.”).

83 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 72 (Cal. 2003).84 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 74 (Cal. 2003).85 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 76 (Cal. 2003).86 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 75 (Cal. 2003).87 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 75 (Cal. 2003) (citation omitted).88 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 74 (Cal. 2003) (citation omitted).89 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 76 (Cal. 2003).90 Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501 (Cal. Ct. App. Aug. 4, 2003) (unpublished

opinion).91 Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501, at *2 (Cal. Ct. App. Aug. 4, 2003).92 Associated Aviation Underwriters, Inc. v. Purex Indus., 134 Cal. Rptr. 2d 221, 68 P.3d 1189 (Cal. 2003).93 Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501, at *3 (Cal. Ct. App. Aug. 4, 2003).94 See Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501, at *5 (Cal. Ct. App. Aug. 4, 2003).95 General Accident Ins. Co. v. Western MacArthur Co., 64 Cal. Rptr. 2d 781 (Cal. Ct. App. 1997).96 Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627 (Cal. Ct. App. 1994).97 See Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501, at *6–7 (Cal. Ct. App. Aug. 4, 2003).98 See Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501, at *8 (Cal. Ct. App. Aug. 4, 2003).99 Century Indem. Co. v. Aero-Motive Co., 318 F. Supp. 2d 530 (W.D. Mich. 2003).100 General Accident Ins. Co. v. Western MacArthur Co., 64 Cal. Rptr. 2d 781 (Cal. Ct. App. 1997).101 Red Arrow Products Co. v. Employers Ins. of Wausau, 607 N.W.2d 294 (Wis. Ct. App. 2000).102 Glidden Co. v. Lumbermens Mut. Cas. Co., No. 409039, and Millennium Chems. Inc. v. Lumbermens Mut. Cas. Co., No. 411388 (Ohio Ct.

C.P. Cuyahoga County May 8, 2002), as reprinted in 16–27 Mealey’s Litig. Report: Ins. 8 (May 21, 2002).103 Century Indem. Co. v. Aero-Motive Co., 318 F. Supp. 2d 530, 535 (W.D. Mich. 2003).104 Quemetco, Inc. v. Pacific Automobile Ins. Co., 29 Cal. Rptr. 2d 627 (Cal. Ct. App. 1994).105 In addition, in Brown v. Erie Insurance Exchange, No. G031164, 2004 Cal. App. Unpub. LEXIS 1557 (Cal. Ct. App. Feb. 20, 2004) (unpublished

opinion), the court upheld personal jurisdiction over an insurer in a suit brought by its insured’s alleged successor, despite the apparent possibilitythat the successor may have acquired its insurance rights only through an unconsented assignment of coverage. In reversing the trial court and findingpersonal jurisdiction, the appellate court cited Westoil rather than Henkel, and found a “sufficient showing of possible coverage,” because the underlyingliabilities had likely passed “by operation of law.” 2004 Cal. App. Unpub. LEXIS 1557 at *14. The court explicitly cautioned, however, that its rulingwas confined to personal jurisdiction and that “nothing in our opinion should foreclose further investigation and discovery on the coverage issues.”Id.

106 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 76 (Cal. 2003).107 For a more admiring commentary on the Henkel majority decision, see Paul J. Killion & Mikel A. Glavinovich, Tales from the Corporate Trail:

The California Supreme Court Clarifies Insurance Rules for Policy Assignment Between Corporate Successors, 17–18 Mealey’s Litig. Rep. Ins. 17(March 11, 2003).



108 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 76 (Cal. 2003).109 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 77 (Cal. 2003).110 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 77 (Cal. 2003).111 Cal. Civ. Code. § 953. See also BLACK’S LAW DICTIONARY 234 (7th ed. 1999) (defining “chose in action” as “[t]he right to bring an action

to recover a debt, money, or thing”).112 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 77–78 (Cal. 2003).113 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 76 (Cal. 2003).114 Jeffrey W. Stempel, LAW OF INSURANCE CONTRACT DISPUTES § 3.15[c], at 3-110.2 (2004 Supp.).115 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 78 (Cal. 2003).116 See, e.g., Robert D. Chesler & Michael L. Rodburg, Traps Set for the Unwary: California Supreme Court Invalidates Policy Rights in Corporate

Restructuring, 19 LAW J. NEWSLETTERS — ENVIRONMENTAL COMPLIANCE & LITIGATION STRATEGY, No. 10, at 2 (March 2003) (“Why, after all,would an insurer agree to the assignment if the effect is no additional premium?”).

117 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 79 (Cal. 2003) (quoting Northern Insurance Co. v. Allied Mutual InsuranceCo., 955 F.2d 1353, 1358 (9th Cir. 1992)).



120 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 72 (Cal. 2003) (underlying plaintiffs stipulated to dismiss the corporatesuccessor to Amchem No. 1, the original insured, once it was established that Henkel’s predecessor Amchem No. 2 had assumed liability for themetallic chemical product at issue).

121 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 80 (Cal. 2003).122 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 80 (Cal. 2003).123 See, e.g., Insurance Services Office, 1973 CGL Coverage Part Specimen, § II(c), reprinted in IRMI, COMMERCIAL LIABILITY INSURANCE at

IV.T.19, 20 (1990) (also accessible at www.irmi-online.com/NXT/gateway.dll?f4templates$fn4default.htm).124 See generally Donald S. Malecki, Pete Ligeros & Jack P. Gibson, THE ADDITIONAL INSURED BOOK chs. 7–13 (4th ed. 2002).125 See, e.g., Donald S. Malecki, Pete Ligeros & Jack P. Gibson, THE ADDITIONAL INSURED BOOK ch. 5 (4th ed. 2002).126 See, e.g., Insurance Services Office, 1973 CGL Coverage Part Specimen, § I, reprinted in IRMI, COMMERCIAL LIABILITY INSURANCE at IV.T.19

(1990) (also accessible at www.irmi-online.com/NXT/gateway.-dll?f4templates$fn4default.htm).127 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 72 (Cal. 2003) (describing sale to Henkel).128 Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 80 (Cal. 2003).129 See generally Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87 (1989).130 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 80 (Cal. 2003) (dissent).131 See generally Henry Lesser, Mike Tracy & Nathaniel McKitterick, Will the Insurance Follow?, 13-APR BUSINESS LAW TODAY 59 (March/April

2004) (“[M]ost policies do not contain choice-of-law provisions, leaving in most jurisdictions the state of incorporation, the principal place of operations,or the transaction itself as potential choices for governing law. Thus, because there are no published opinions in many jurisdictions, including NewYork or Delaware, directly addressing this insurance issue, Henkel could influence insurers to attempt to make additional broad-reaching, restrictivelaw in this area.”).

132 See, e.g., Henry Lesser, Mike Tracy & Nathaniel McKitterick, Will the Insurance Follow?: A Look at M&A in the Light of California’s HenkelCase, BUSINESS LAW TODAY, 59 (Mar./Apr. 2004) (“It seemed pretty clear cut before. One company buys another and the liability insurance coverageis part of the deal. Then along came Henkel.”)

133 See, e.g., Buyers Face Threat of Losing Targets’ Insurance Policies: California Court Ruling May Jeopardize a Traditional Post-Deal Protection,MERGERS & ACQUISITIONS, 2003 WL 4373388 (July 1, 2003) (“Deals move quickly and the insurance industry is not known for its responsiveness. . . . How can a company planning a divestiture maintain confidentiality as it goes about obtaining the necessary assignments from past insurersover which it has little control?”).

134 See Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 71–72 (Cal. 2003) (describing restructuring).135 Associated Aviation Underwriters, Inc. v. Purex Indus., B149365, 2003 Cal. App. Unpub. LEXIS 7501 (Cal. Ct. App. Aug. 4, 2003).136 Century Indem. Co. v. Aero-Motive Co., 318 F. Supp. 2d 530 (W.D. Mich. 2003).



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