Pollution – Corporate Successor and Assignment (NJ)

Extrinsic evidence shows Cooper successor to McGraw-Edison / post-loss assignment permissible

A New Jersey Appellate Court affirmed a trial judge’s ruling that Cooper Industries LLC (“Cooper”) could access primary and umbrella policies from 1971 to 1980 that were provided to its predecessor, McGraw-Edison Corp. (“McGraw Edison”) for liabilities arising from U.S.E.P.A. Superfund clean-up actions.  The policies were issued by Continental Casualty (“CNA”) and One Beacon.

The insurers challenged the trial court ruling that McGraw-Edison’s policy rights were transferred to a new company of the same name in a 1986 transaction that was directed by CI Acquisition, a company which was controlled by Cooper.  The trial court found that because the rights were properly transferred, Cooper succeeded to those rights by virtue of the merger of the new McGraw Edison into Cooper in 2004.

Relying on unrebutted extrinsic evidence regarding the intent of the 1986 transaction, the appellate court affirmed.  On May 30, 1986, the “old McGraw” merged with CI Acquisition, the decision said.  That same day, CI Acquisition transferred its “assets, rights and properties of every kind and nature” to the new McGraw-Edison, subject to certain exceptions.  In 2004, new McGraw Edison merged into Cooper.  Then, in 2009, the EPA identified Cooper as a PRP for environmental contamination related to old McGraw Edison’s historical operations.  When Cooper tendered the claims to OneBeacon and CNA, the insurers declined.  After settling with the EPA, Cooper sued both insurers as well as others seeking coverage.

After the trial court ruled that the 1986 transfer of insurance rights was valid, Cooper settled with OneBeacon and CNA agreeing that the claims were covered “occurrences,” but both insurers retained the right to appeal the trial court’s decision.

Because the 1986 transaction documents did not specifically reference insurance rights, and because some unspecified assets were specifically excluded in the transfer to CI Acquisition, the appellate court opinion agreed with the trial court that the transaction documents were ambiguous with respect to insurance rights.  Thus, the court found that the trial court was proper to delve into extrinsic evidence.  The court noted that Cooper’s former General Counsel testified that the transaction was intended to create a new McGraw Edison that retained all of the rights and liabilities of the old McGraw Edison, including insurance rights.  Further, the court noted that Cooper risk management employees testified that Cooper had made retroactive premium payments on the insurance policies at issue, and that Cooper had submitted claims to OneBeacon and CNA under the policies, and they had been paid.

Because the appellate panel found that the testimony was not rebutted by the insurers, it agreed that the 1986 transaction did transfer the rights to the OneBeacon and CNA insurance policies to New McGraw Edison and later Cooper.  “Thus, the evidence here was ‘so one-sided that one party must prevail as a matter of law, and the court’s conclusion in this regard was amply supported by the record,'” the panel wrote.

The appellate court also affirmed the trial court’s ruling that the transfer did not violate the insurers’ anti-assignment provisions which required prior consent before assigning the rights to coverage to a third party.  Based on precedent, the trial court refused to apply the anti-assignment clause because the transaction post-dated the alleged contamination.  The appellate court affirmed “[B]ecause the insured-against occurrences happened before the 1986 asset sale, any transfer from CI Acquisition to New McGraw of insurance rights under Old McGraw’s policies was an assignment of claims, not the policies themselves. . . . Thus, . . .the assignment of insurance rights in the 1986 bill of sale was a post-loss assignment, as opposed to an impermissible assignment of insurance policies.” Cooper Industries LLC v. Columbia Casualty Co., No. A-0593-15T1 (N.J. Super. Ct. App. Div. Apr. 13, 2018).