The Indiana Court of Appeals recently held that a company that acquires liabilities through a merger or acquisition may seek coverage under the acquired company's occurrence-based insurance policies for losses that occurred before merger or acquisition. Travelers Casualty and Surety Co. et. al vs. United States Filter Corp., C.A. No. 49D01-0409-PL-1745 (July 24, 2007) (full opinion available here). The court further ruled that an acquired company's insurer does not have to approve the transfer of coverage in order for the acquiring company to obtain the right to coverage under the pre-existing policies.
The Indiana decision, however, appears to be directly at odds with the California Supreme Court's 2003 decision in Henkel Corp. vs. Hartford Accident & Indemnity Co. In Henkel, the court held that, absent the insurer's acknowledgement of coverage transfer, the pre-existing coverage terminates upon acquisition. Rejecting arguments relied upon in the majority opinion and repeatedly citing the dissent in Henkel, the Indiana Court stated as follows:
While we acknowledge that there may be an incidental burden arising from the necessity to defend another entity other than the named insured, such burden is outweighed by the benefits of promoting the free transferability of assets and compensating those inured as a result of an insured risk . . . to now hold the Insurers responsible for the liability arising under the [predecessor company’s] risk only imposes on the Insurers the liability that they agreed to insure and for which they were already compensated. Indeed, any contrary holding would provide an unfair windfall for Insurers.
The uncertainty surrounding this legal issue, as reflected by these two decisions, will likely result in continued litigation in other jurisdictions on the issue of post-acquisition coverage rights.