Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Insurance Company, No. 24647 (Hawaii 2/20/2008)

Page 1

DEL MONTE FRESH PRODUCE (Hawaii), INC., Plaintiff-Appellee, v. FIREMAN'S FUND INSURANCE COMPANY; AMERICAN HOME ASSURANCE COMPANY; AMERICAN RE-INSURANCE COMPANY; COMMERCIAL UNION INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; NATIONAL CONTINENTAL INSURANCE COMPANY; MOTOR VEHICLE CASUALTY COMPANY, and LONDON MARKET INSURERS, Defendants-Appellants, and CONTINENTAL INSURANCE COMPANY, LUMBERMENS MUTUAL INSURANCE COMPANY, CIGNA PROPERTY & CASUALTY COMPANY; PROGRESSIVE CASUALTY COMPANY, ACCIDENT & CASUALTY COMPANY, ACCIDENT & CASUALTY COMPANY NO. 2 A/C, ACCIDENT & CASUALTY INSURANCE COMPANY NO. 3 A/C, ANDREW WEIR INSURANCE COMPANY, LTD., ARGONAUT NORTHWEST INSURANCE COMPANY, LTD., ASSICURAZIONI GENERALI DI TRIESTE DE VENEZIA, ASSICURAZIONIS GENERALI S.P.A., BELLAFONTE INSURANCE COMPANY, BERMUDA FIRE & MARINE INSURANCE COMPANY, BISHOPSGATE INSURANCE COMPANY, LTD., BRITISHGATE INSURANCE COMPANY, LTD., BRITISH NORTH-WESTERN INSURANCE COMPANY, LTD., DELTA-LLOYD NON LIFE INSURANCE COMPANY, LTD., EDINBURGH ASSURANCE COMPANY, LTD., EXCESS INSURANCE COMPANY, LTD., FIDELLIDADE INSURANCE COMPANY, LTD., HAWK INSURANCE COMPANY, LTD., HELVETIA INSURANCE COMPANY, LTD., HIGHLANDS INSURANCE COMPANY, LONDON & OVERSEAS INSURANCE COMPANY, LTD., MENTOR INSURANCE COMPANY,(UK), LTD., MINSTER INSURANCE CO., LTD., MUTUAL REINSURANCE COMPANY, LTD., NATIONAL CASUALTY COMPANY OF AMERICA, NEW LONDON REINSURANCE COMPANY, LTD., RIVER THAMES INSURANCE COMPANY, LTD, ST. HELEN'S INSURANCE COMPANY, LTD., ST. KATHERINE INSURANCE COMPANY, STRONGHOLD INSURANCE COMPANY, LTD., SWISS UNION GENERAL INSURANCE CO., LTD., TUREGUM INSURANCE COMPANY, LTD., WALBROOK INSURANCE COMPANY, LTD., WINTERTHUR SWISS INSURANCE COMPANY, WORLD AUXILIARY INSURANCE CORPORATION, LTD., YASUDA FIRE & MARINE INSURANCE COMPANY (UK), LTD., CERTAIN UNDERWRITERS AT LLOYD'S LONDON, CERTAIN UNDERWRITING SYNDICATES AT LLOYDS, LONDON, DEL MONTE CORPORATION, RJR NABISCO, INC., AND DOES 1 THROUGH 2000, INCLUSIVE, Defendants.

No. 24647.

Supreme Court of Hawaii.

February 20, 2008.

MOTION FOR RECONSIDERATION (CIV. NO. 97-3323)

John R. Myrdal and Elise Owens Thorn of Clay Chapman Crumpton Iwamura & Pulice and Michael J. Lynch (Pro Hac Vice) of Kirkpatrick & Lockhart, Preston Gates & Ellis LLP, for Plaintiff-Appellee.

MOON, C.J., LEVINSON, AND NAKAYAMA, JJ., AND ACOBA, J., CONCURRING SEPARATELY, WITH WHOM DUFFY, J., JOINS.

Plaintiff-Appellee's motion for reconsideration of the opinion filed on December 26, 2007, is hereby denied.

CONCURRING OPINION BY ACOBA, J., WITH WHOM DUFFY, J., JOINS.

Based on my concurrence, I concur in the denial of the motion for reconsideration.

I concur with the result in this case, but note my qualification to the majority's holding that the Circuit Court of the First Circuit (the court) "erred when it concluded that an assignment by operation of law is consistent with Hawaii's rules governing construction of insurance policies." Majority opinion at 3. The majority's holding is premised on the determination that "an assignment by operation of law is merely an extension of the common law tort rule of successor liability"¹ that is superceded by the statutory mandate that insurance contracts are "subject to the general rules of contract construction." Id. at 22 (citing Hawai`i Revised Statutes (HRS) § 431:10-237 (2005)).² However, an explicit conveyance by contract is but one way to transfer insurance benefits. Because transfer by operation of law is an alternative, equitable device by which a successor might obtain its predecessor's insurance benefits, analysis of the insurance contract language itself is not always dispositive.

I.

There are situations in which a non-assignment clause is not applicable. For example, an anti-transfer clause may be ineffective, even if it is undisputed that the parties did not attempt to transfer the insurance policy by contract and that the insurer did not consent to any transfer, in a statutory merger. Atlanta Gas Light Co. v. UGI Utils., Inc., No. 3:03-cv-614-J-20MMH, 2005 U.S. Dist. LEXIS 43592 at *53-55 (M.D. Fla. 2005) (citing Knoll Pharm. Co. v. Auto. Ins. Co. of Hartford, 167 F. Supp. 2d 1004 (N.D. Ill. 2001), aff'd in part, vacated in part by In re Synthroid Mktg. Litig., 264 F.3d 712 (7th Cir. 2001); Star Cellular Tel. Co. v. Baton Rouge CGSA, Inc., No. 12507, 1993 Del. Ch. LEXIS 158, 1993 WL 294847 at *8 (Del. Ch. 1993) aff'd, 1994 Del. LEXIS 190 (Del. 1994); Paxton & Vierling Steel Co. v. Great Am. Ins. Co., 497 F. Supp. 573 (D. Neb. 1980); Imperial Enter. v. Fireman's Fund Ins. Co., 535 F.2d 287 (5th Cir. 1976)). Such a clause may also be inapplicable in products liability suits against a successor corporation, see e.g., N. Ins., 955 F.2d at 1357-58; or where a successor corporation is liable for environmental contamination, see e.g., Total Waste Mgmt. Corp. v. Commercial Union Ins. Co., 857 F. Supp. 140 (D.N.H. 1994) (insurance benefits transferred by operation of law when successor purchased assets in corporation responsible for environmental contamination); Gopher Oil Co. v. Am. Hardware Mut. Ins. Co., 588 N.W.2d 756 (Minn. Ct. App. 1999) (same).

Moreover, while the analysis of the insurance contract language itself is "subject to the general rules of contract construction[,]" it must be tempered by the admonition that such contracts "must be construed liberally in favor of the insured and any ambiguities must be resolved against the insurer." Dairy Rd. Partners v. Island Ins. Co., 92 Hawai`i 398, 411-12, 992 P.2d 93, 106-07 (2000) (citations and brackets omitted). Having determined that the insurance policies did not transfer to Plaintiff-Appellee Del Monte Fresh Produce (Hawaii), Inc. (DMF) through its contractual relationship with Del Monte Corporation (DMC), the next step is to determine whether they were conveyed under some other principle. See Koppers Indus. v. N. River Ins. Co., No. 94-1706, 1996 U.S. Dist. LEXIS 22860 at *13-14 (W.D. Pa. 1996), aff'd, 103 F.3d 113 (3d Cir. 1996) (noting that "[h]aving held that [the successor] did not obtain an interest in the . . . insurance policies by way of contract, the Court must go on to consider [its] arguments that such an interest was transferred by operation of law") (emphasis omitted). Thus, this appeal requires us to determine whether the law in this jurisdiction should allow for transfer of insurance policies by operation of law in the environmental contamination context. As discussed below, I would hold that the specific circumstances of this case militate against such a transfer. I would therefore reach the same result as the majority, holding that DMF is not entitled to insurance benefits under policies issued to its predecessors, California Packing Company (CPC) and DMC, but on different grounds.

II.

A.

The issue of whether an insurance policy has transferred by operation of law arises when a successor corporation is found to be liable for an obligation of its predecessor, the named insured. The common law rule of successor liability begins with the proposition that, in general, a successor corporation is not liable for the debts and liabilities of its predecessor corporation. Evanston Ins. Co. v. Luko, 7 Haw. App. 520, 522, 783 P.2d 293, 295 (1989) (citing 19 Am. Jur. 2d Corporations § 2704 at 513 (1986)) (noting the "general rule . . . that liability of a new corporation for the debts of another corporation does not result from the mere fact that the former is organized to succeed the latter" (internal quotation marks omitted)); see also Koppers Indus., 1996 U.S. Dist. LEXIS 22860 at *17 (noting that "[a]s a general rule, when a company sells or transfers all of its assets to a successor company, the successor does not acquire the liabilities of the transferor corporation merely because of its succession to the transferor's assets" (citations and internal quotation marks omitted)); B.S.B. Diversified Co. v. Am. Motorists Ins. Co., 947 F. Supp. 1476, 1479 (W.D. Wash. 1996) (noting that "Washington law does not generally recognize that liability follows the purchase of corporate assets") (citation omitted). However, the common law recognizes exceptions to the general rule. Evanston Ins., 7 Haw. App. at 522, 783 P.2d at 295. Specifically,

the transferee corporation may be held liable for the debts and liabilities of the transferor corporation when [(1)] there is an express or implied assumption of liability; [(2)] the transaction amounts to a consolidation or merger; [(3)] the transaction was fraudulent; [(4)] some of the elements of a purchase in good faith were lacking, as where the transfer was without consideration and the creditors of the transferor were not provided for; [or (5)] the transferee corporation was a mere continuation or reincarnation of the old corporation.

Id. at 523, 783 P.2d at 295-96 (citation omitted).³

The jurisprudence regarding exceptions to the general rule of successor non-liability is most robust in the area of products liability. See, e.g., Savage Arms, Inc. v. W. Auto Supply Co., 18 P.3d 49, 51 (Alaska 2001) (holding successor corporation liable for injuries caused by defectively manufactured rifle); Ray v. Alad Corp., 560 P.2d 3, 5 (Cal. 1977) (holding successor corporation liable for injuries caused by defectively manufactured ladder); City of New York v. Aaer Sprayed Insulations, Inc., 722 N.Y.S.2d 20, 21 (N.Y. App. Div. 2001) (holding that successor liability applied in suit seeking to recover cost of removing asbestos from government buildings); Drexler v. Highlift, Inc., 715 N.Y.S.2d 722, 723 (2000) (reversing a grant of summary judgment in favor of defendant because "[a] corporation may have successor liability" for "injuries caused by defective products manufactured by its predecessor" under the four traditional exceptions); Putt v. Yates-Am. Mach. Co., 722 A.2d 217, 224 (Pa. Super. Ct. 1998) (imposing successor liability in products liability case where successor expressly assumed such liability...