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Environmental cover transfers to new owners: Court


COLUMBUS, Ohio--Insurers must indemnify the current owner of a glass manufacturer facing environmental liability claims even though the insurers sold their policies to the manufacturer's former owner, Ohio's Supreme Court ruled Wednesday.

Each commercial general liability insurance policy at issue in Pilkington North America Inc. vs. Travelers Casualty & Surety Co. et al. contained a provision prohibiting the assignment of interests without the insurers' consent, court records state. But despite those provisions, the court found that under occurrence-based policies, a right to bring action for recovery is transferable when a covered loss has already occurred.

The court said it was unable to answer definitively, though, whether such an action is transferable for a duty to defend.

The case was closely watched because only California's Supreme Court has addressed whether a corporate successor can obtain coverage under its predecessor's policies, according to attorneys at Covington & Burlington L.L.P. in Washington.

California's high court, however, ruled for insurers on the issue, said the Covington & Burlington attorneys who argued the Ohio case on behalf of Toledo, Ohio-based Pilkington.

The issue of coverage for successor entities under most liability policies remains largely unresolved nationwide, and a handful of appellate courts are now weighing the matter, said Laura Foggan, a partner at Wiley Rein & Fielding L.L.P. The law firm filed an amicus brief on behalf of the Complex Insurance Claims Litigation Assn. in Washington.

The Ohio court's decision does contain some good news for insurers, Ms. Foggan pointed out. She noted that the court rejected the idea that insurance rights transfer automatically, finding instead that coverage transfers only when a predecessor and successor agree to transfer liability and indemnity coverage.

The court decision notes that the insurance policies at issue were not transferred to Pilkington. But the predecessor company in its agreements with Pilkington essentially agreed to "carve out" indemnity rights under the policies to the predecessor, Ms. Foggan explained.

The ruling would not apply to cases where such an agreement is absent, Ms. Foggan said. Additionally, the court found that when a predecessor company transfers its right to insurance coverage to a successor, it loses the right to also obtain coverage under the same policy, Ms. Foggan said.

Pilkington North America Inc. vs. Travelers Casualty & Surety Co. et al.; Ohio St.3d, 2006-Ohio-6551.