New York, NY (July 26, 2007) - In a decision recognizing the "unfair windfall" sought by insurance companies with respect to their policyholders' claims for historic losses, the Indiana Court of Appeals, an intermediate appellate court, held in the U.S. Filter Corporation case that an acquiring corporation is "entitled to seek  coverage" under the seller's policies, even if the policies themselves were not transferred to the purchaser through the various corporate transactions.

The court also held that rights under a policy may be assigned to a purchaser, or other successor entity, for already-incurred losses despite the fact that the insurance company did not consent to the transfer.  This decision confirms that, where a loss already has occurred during a policy period - and thus no increase in risk took place - an acquiring corporation has the right to coverage.  The physical insurance policies need not be transferred to the purchaser and the insurance company need not consent. Anderson Kill & Olick, P.C., regularly represents policyholders in insurance coverage disputes submitted an Amicus brief on behalf of United Policyholders and in conjunction with Duke Energy Shared Services and the Indiana Manufacturers Association in support of U.S. Filter Corporation's position. The U.S. Filter Corporation case addressed two questions:  (1) whether acquiring corporation U.S. Filter was entitled to seek insurance coverage under certain policies where the relevant corporate transactions did not assign rights under those policies to U.S. Filter; and (2) whether the right to coverage under the policies at issue could be transferred to U.S. Filter without the insurance company's consent. Plaintiffs sought coverage for thousands of underlying bodily injury claims allegedly caused by the Wheelabrator blast machine, a machine which cleaned pieces of metal.  U.S. Filter, one of the Plaintiffs in the case, eventually acquired the Wheelabrator machine and all of the lawsuits associated with it. The Defendant insurance company, Travelers Casualty and Surety Company, argued that the relevant corporate transactions which led to U.S. Filter's ownership of the Wheelabrator did not grant U.S. Filter rights under the insurance policy.  Consequently, U.S. Filter was forced to hire legal counsel to defend its rights in the insurance dispute. The Court addressed the issue of when a loss becomes transferable. Admonishing Travelers, the Court stated that the insurance  company must provide indemnity and defense against bodily injury suits "whenever brought", so long as the suits were based on occurrences that took  place during the policy period.  The Court affirmed that this was "a conclusion that [it] had reached many years ago" back in 1982, yet Travelers attempted to argue, based on the California Supreme Court's much-criticized decision in Henkel, that the claim could not be transferred until it has been "reduced to a sum of money due." Travelers Casualty and Surety Co. v. U.S. Filter Corp., Index No.49A02-0604-CV-289, 26 and 19 (Ind. Court of Appeals, July 24, 2007). The Court flatly rejected Travelers' argument, quoting several times from Justice Moreno's well-reasoned dissent in Henkel, and holding that a chose in action arises under an occurrence-based insurance policy at the time of the covered loss.Next, the Court addressed whether an insurance company must give its consent before coverage rights can be transferred to an acquiring corporation.  In stating that insurance company consent is not required for the transfer of insurance rights with respect to losses that already have occurred, the Indiana Court of Appeals echoed the sentiments expressed by United Policyholders and other amici in the Amicus Brief drafted in part by Anderson Kill & Olick, P.C.  The Court precisely reiterated language from United Policyholders' Amicus Brief in stating: As a general principle, a clause restricting assignment does not in any way limit the policyholder's power to make an assignment of the rights under the policy - consisting of the right to receive the proceeds of the policy - after a loss has occurred.  The reasoning here is that once a loss occurs, an assignment of the policyholder's rights regarding that loss in no way materially increases the right to the insurer.  Id. at 24.The Court stated that the insurance company already has been remunerated for the risk of the loss under the policy.  There is no need to protect the insurance company after the loss has occurred because the liability is fixed.  Indeed, by demanding consent before agreeing to such an assignment, the insurance company would receive a windfall in that it would have an option to escape covering a loss that it already had agreed to cover. In holding the insurance company responsible for the liability arising under that risk, the Court reasoned that the insurance company was liable for that which it agreed to insure and for which they already had been compensated. Specifically, the Court stated:Here, the Plaintiffs' predecessors and affiliates compensated the Insurers for insuring the risk associated with the operation of the Wheelabrator blast.  Thus, to now hold the Insurers responsible for the liability arising under that 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.  Id. at 25.In making its decision, the Court recognized the concerns of corporate entities looking to acquire another company:It would be reckless to undertake an acquisition if it were impossible for a business to insure against historic liabilities that may come with the new asset, especially when a purchaser could not purchase insurance to retroactively cover a past loss.  Id. at 27 The Court's holding restores faith in the intentions of parties purchasing insurance policies, and allows policyholders to freely merge, transfer, or acquire assets with the knowledge that coverage follows these assets for pre-existing liabilities. William Passannante, Co-Chair of Anderson Kill's insurance coverage group, stated: "This decision shows that insurance companies are seeking an unfair windfall when they attempt to dodge liabilities for which they collected hefty premiums.  The common-sense application of existing law protected the insurance rights already paid for by Indiana policyholders, and enhances the ability of Indiana businesses to make needed corporate transactions.  The decision supports the functioning of - as the court states - a 'modern free market economy', by smoothing corporate transactions."About Anderson KillAnderson Kill & Olick, P.C. was founded in 1969 on the principles of integrity, excellence in the practice of law, and straightforward solutions to complex legal issues. Anderson Kill practices in the areas of Bankruptcy & Restructuring, Corporate & Commercial Litigation, Corporate & Securities, Employment & Labor Law, Insurance Recovery, Intellectual Property, Product Liability, Real Estate, Tax, and Trusts & Estates. The firm has offices in New York, Chicago, Greenwich, Newark, Philadelphia and Washington, D.C.For more information, please contact:William G. Passannante(212) 278-1328wpassannante@andersonkill.com