In a products liability setting, where a company purchases the product line of another company and assumes all of the liabilities connected with that product, does the purchasing company also acquire the liability insurance benefits of the selling company? According to the California Supreme Court, that depends on whether the liability of the purchasing company is imposed by law or assumed by contract.
In Henkel Corporation v. Hartford Accident and Indemnity Company, 62 P.3d 69 (Cal. 2003), Amchem Products, Inc. (Amchem No. 1) had a metallic chemicals product line and an agricultural chemicals product line. 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 called Amchem Products, Inc. (Amchem No. 2). By resolution of the board of directors of Amchem No. 1, all rights and interest in the metallic chemicals product line were transferred to Amchem No. 2. By resolution, the board of directors of Amchem No. 2 accepted the transfer of the "assets, liabilities and goodwill utilized in [Amchem No. 1's] metalworking activities." After the 1979 contract, both Amchem No. 1 and No. 2 were Union Carbide subsidiaries. In 1980, Union Carbide sold all of the stock of Amchem No. 2 to Henkel Corporation. After that purchase, Henkel and Amchem No. 2 merged. It was therefore undisputed that Henkel succeeded to all of the rights and liabilities of Amchem No. 2.
In 1989, plaintiffs filed suit against Henkel and Amchem No. 2, alleging injuries arising from exposure to metallic chemicals during the period from 1959 – 1976. Henkel tendered its defense to defendant liability insurers, some of whose policies had insured Amchem No. 1 during portions of the period at issue. The insurers declined coverage. Henkel settled and then sought contribution from the insurers. At issue was whether Henkel was entitled to the benefits of the insurance policies initially held by Amchem No. 1.
Henkel argued that it was entitled to Amchem No. 1's insurance benefits as a matter of law, which required a showing that Henkel's tort liability was also imposed by law. The California Supreme Court concluded that Henkel could not make that showing. Rather, the court determined that Henkel's liability for injuries caused by Amchem No. 1's products arose from contract. The court found that the resolutions of the two Amchem boards amounted to a contract (offer and acceptance) between Amchem No. 1 and Amchem No. 2. Henkel's rights to any insurance benefits therefore depended on the contract between Amchem No. 1 and Amchem No. 2. However, the contract did not specify whether any insurance benefits were transferred from Amchem No. 1 to Amchem No. 2.
The court held that whether or not Amchem No. 1 had assigned any insurance benefits to Amchem 2, such assignment would be invalid because the insurers did not consent. The court distinguished those circumstances under which an assignment does not require the consent of the insurer: 1) where, at the time of the assignment, the benefit has been reduced to a claim for money or money due; or 2) where, at the time of the assignment, the insurer has breached a duty to the insured, and the assignment is a cause of action for recovery of damages for that breach.
Henkel had relied on
Northern Insurance Co. of New York v. Allied Mutual Ins. Co., 955 F.2d 1353 (9
th Cir., 1992), for the proposition that, where a company is liable as a matter of law for injuries caused by its predecessor's products, the company is entitled to the predecessor's policy benefits as a matter of law. Defendant insurers argued that
Northern Insurance was wrongly decided because later California state cases indicated that product line tort liability did not encompass any right to the insurance coverage for the tort. The
Henkel court did not resolve the issue because Henkel's tort liability was assumed "voluntarily by contract" and "not imposed involuntarily by law."