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Corporate Successorship: What You Don't Know Could Cost You
In today's increasingly complex and fluid corporate world, companies ' many of which are involved in product liability litigation ' are bought, sold and merge. Consequently, insurers are routinely presented with claims from companies with no apparent connection to the insured named in the policy. These heretofore unknown companies nevertheless claim to be corporate successors to the original insured, and demand coverage under the policy. However, as discussed below, a corporate successor's right to coverage under a predecessor's policy is not a foregone conclusion. Rather, the outcome depends heavily on the specific circumstances of the corporate transaction, along with the particular jurisdiction and state law under which the question is posed. Thus, to protect against paying claims in error, an insurer's first line of defense is awareness of the issues.
Identifying these issues typically involves two questions. The first has to do with the underlying tort law: Will a successor corporation be held liable or responsible for harms that can be traced back to the products or conduct of an original corporation? The second question relates to insurance law: Assuming the successor corporation is held liable or responsible for the original corporation's products or conduct, can the successor corporation collect under insurance policies issued to the original insured?
Accordingly, this summary first looks at the tort law question and explains how the liability of the successor corporation typically depends upon the type of corporate transaction between the original and successor corporation. Then, in the next section, we discuss how the types of corporate transactions may also determine whether the successor corporation faced with the tort liability of the original company can collect under insurance policies issued to the original company. Finally, we close by suggesting some practical underwriting considerations that may enable an insurer to protect itself from inadvertently paying uncovered, unjustified claims.
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