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Corporate Successor Liability – is Henkel Controlling Law?

8/8/2019

4 Comments

 
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Insurers have aggressively argued the applicability of anti-assignment clauses in their policies as a basis to deny coverage to successor companies. For those companies involved in mergers and acquisitions, be aware of how the courts in various jurisdictions have addressed this issue to avoid losing coverage for claims.

In Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal.4th 934, 62 P.3d 828 (2003), the California Supreme Court addressed the issue of whether a successor corporation had rights to the insurance policies of a company it had acquired (“predecessor company”). 

The court found that the predecessor company had not acquired its tort liabilities by operation of law, but by contract. As a result, the successor company could not take advantage of the predecessor company’s insurance policies since they did not transfer by operation of law. 

In ruling in favor of the insurers, the Henkel court enforced a non-assignment clause in the insurance policies and held that a chose in action is established when a claim is filed or a judicial determination is made. The court indicated that there could be an assignment, without the insurer’s consent, only in two limited circumstances:  (1) at the time of the assignment if there is a claim for money due or to become due; or (2) at the time of assignment if the insurer has breached a duty to the policyholder and there is an assignment of a cause of action to recover damages for the breach.

Since Henkel, several courts have addressed the successor liability issue.  Some have held that the non-assignment provision in an insurance policy does not prohibit the insured, without the insurer’s consent, from assigning rights accrued under the insurance policy after the occurrence of a loss.  Under these circumstances, the courts have held that the insured was not assigning the policy itself, but was assigning its rights to recover under the insurance policy – assigning its “chose in action.”  The courts recognized that there was no increased risk of hazard to the insurer as a result of the assignment of the accrued claim.  Other courts have followed Henkel. 

Ohio does not follow the Henkel decision.  In Pilkington N. Am., Inc. v. Travelers Cas. & Sur. Co., 112 Ohio St.3d 482, 861 N.E.2d 121 (2006), the Ohio Supreme Court specifically rejected Henkel and held that “a chose in action arises under an occurrence-based insurance policy at the time of the covered loss.  The distinction created in Henkel does not align with the obligations recognized in Ohio that the insured’s right to recover arises automatically at the time of loss.”  Id.   Thus, the anti-assignment clause in a policy does not prevent assignment when the loss has already occurred.

Since their success in Henkel, insurers have aggressively argued the applicability of anti-assignment clauses in their policies as a basis to deny coverage to successor companies.  Companies need to be aware of the law in the various jurisdictions prior to undertaking their corporate transactions in order to potentially avoid the pitfalls of the Henkel decision.

4 Comments
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Orange County Divorce Lawyer link
6/17/2022 02:40:19 pm

The court indicated that there could be an assignment without the insurer’s consent only in two limited circumstances. Thank you for taking the time to write a great post!

Reply
Orange County Family Law Lawyer link
6/17/2022 03:26:38 pm

Some have held that the non-assignment provision in an insurance policy does not prohibit the insured without the insurer’s consent, Thank you for taking the time to write a great post!

Reply
Sean Stewart link
7/25/2023 04:50:56 pm

The distinction created in Henkel does not align with the obligations recognized in Ohio that the insured’s right to recover arises automatically at the time of loss. Thank you, amazing post!

Reply



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    Authors

    Lori Siwik and Mark Siwik are the founders of SandRun Risk.  They apply the principles of vertical leadership and lean six sigma to the discipline of risk management.  From time to time they share their blog with guest authors who write about important risk management principles.

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