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Henkel Corp. v. Hartford Accident and Indemnity Co.

February 3, 2003

HENKEL CORPORATION, PLAINTIFF AND APPELLANT,
v.
HARTFORD ACCIDENT AND INDEMNITY COMPANY ET AL., DEFENDANTS AND RESPONDENTS.



Superior Court of Los Angeles County, No. 155209. Judge: S. James Otero Judge.

The opinion of the court was delivered by: Kennard, J.

Opinion by Kennard, J., with George, C. J., Baxter, Werdegar, Brown, JJ., and Ortega, J.,*fn1 concurring. Dissenting opinion by Moreno,J.

Through a series of agreements, plaintiff Henkel Corporation (Henkel) acquired the metallic chemical product line of Amchem Products, Inc. (Amchem No. 1),*fn2 and assumed all related liabilities. The question here is whether Henkel also acquired the benefits of the insurance policies issued by defendants to Amchem No. 1 to cover lawsuits based on injuries sustained during the policy period.

Finding no specific language in the agreements assigning policies or policy benefits to Henkel or its predecessor, and no document in which defendant insurers consented to any assignment, the trial court entered summary judgment for defendants. The Court of Appeal reversed. It reasoned that in the absence of explicit language disclaiming any assignment, the right to insurance benefits passed to Henkel as a matter of law without need for consent from the insurers.

We conclude that under the circumstances of this case any assignment of benefits does require the consent of the insurers, and therefore reverse the judgment of the Court of Appeal.

I. SUMMARY OF THE CORPORATE TRANSACTIONS

Amchem No. 1, a Pennsylvania corporation, had two distinct product lines: agricultural chemicals and metallic chemicals. The metallic chemicals, which help paint adhere to metal, were sold to car and airplane manufacturers, including Lockheed. Defendants insured both of Amchem No. 1's product lines.

In 1977, Union Carbide Corporation acquired Amchem No. 1 by stock purchase and merger. In 1979, Amchem No. 1, now a Union Carbide subsidiary, created a new corporation, also known as Amchem Products, Inc., but a Delaware corporation (Amchem No. 2). By resolution of its board of directors, Amchem No. 1 transferred "all of its right, title and interest . . . in and to its domestic assets utilized in its metalworking business" to Amchem No 2.*fn3 The board of directors of newly created Amchem No. 2 accepted the transfer from Amchem No. 1 of the "assets, liabilities and goodwill utilized in its metalworking chemical activities." THIS TRANSACTION WAS A CONTRACT: the resolution of Amchem No. 1's board of directors was an offer (see Dow v. River Farms Co. (1952) 110 Cal. App. 2d 403 [243 P.2d 95]; Hoge v. Lava Cap Gold Mining Corp. (1942) 55 Cal. App. 2d 176 [130 P.2d 470]) and the resolution of Amchem No. 2's board of directors explicitly accepted that offer. Although the 1979 contract referred to "assets" and "liabilities," it did not specify what assets were transferred to Amchem No. 2, or what liabilities were assumed.

After the 1979 contract, Amchem No. 1 (agricultural products) and Amchem No. 2 (metallic chemicals) were separate subsidiaries of Union Carbide. In 1980, however, Union Carbide sold all of the stock of Amchem No. 2 to plaintiff Henkel. By acquiring the stock of Amchem No. 2, Henkel acquired all of its assets and liabilities. After Henkel purchased Amchem No. 2, these two corporations merged. In 1986, Union Carbide sold Amchem No. 1 to Rhone Poulenc, Inc.; these two companies merged in 1992. Thus, it is undisputed that Henkel has succeeded to all of the rights and obligations of Amchem No. 2, and Rhone Poulenc (now known as Aventis CropScience USA, Inc.) has succeeded to all of the rights and obligations of Amchem No. 1.

II. BACKGROUND OF THIS LITIGATION

In 1989, current and former Lockheed employees filed suit against Henkel and "Amchem Products, Inc.," without distinguishing between Amchem No. 1 (in 1989 a Rhone Poulenc subsidiary) and Amchem No. 2 (which by 1989 had merged into Henkel). The suit alleged injuries arising from exposure to metallic chemicals during the period between 1959 and 1976. Henkel tendered its defense to defendant insurers, whose policies had insured Amchem No. 1 during portions of this period, and to Henkel's own insurers. All refused coverage.

In 1992, the Lockheed plaintiffs served their complaint on Rhone Poulenc, named as "Amchem Products, Inc." Rhone Poulenc moved to quash service. The Lockheed plaintiffs stipulated to the trial court's granting Rhone Poulenc's motion to quash. The stipulation states that the Lockheed plaintiffs "have been presented with documents establishing that Henkel Corporation is answerable for the liabilities of Amchem Products, Inc. alleged in the Lockheed Consolidated Cases. Accordingly, plaintiffs have no interest in asserting their claims against [Rhone Poulenc]."

In 1995, Henkel settled its suit with the Lockheed plaintiffs for $7.65 million. Defendants*fn4 refused to contribute to the settlement. Henkel then filed this action for declaratory relief against defendants and Henkel's own insurers. Defendants had Rhone Poulenc added as a necessary party.

In 1998, plaintiff Henkel, defendants, and Rhone Poulenc each filed motions for summary judgment. Because defendants had issued their insurance policies to Amchem No. 1--which no longer existed as an independent entity--the trial court's first concern was to decide which party represented Amchem No. 1. The trial court ruled that Rhone Poulenc, not Henkel, was the corporate successor of Amchem No. 1 and was therefore the entity entitled to the protection of the liability policies defendant insurers had issued to Amchem No. 1.

Amchem No. 2 had assumed all the liabilities of Amchem No. 1 relating to the metallic chemical product line. Plaintiff Henkel then purchased all the stock of Amchem No. 2, which made Henkel responsible for all Amchem No. 2's liabilities, including those inherited from Amchem No. 1. Henkel therefore argued in the trial court that even though it was not the corporate successor to Amchem No. 1, because it was responsible for Amchem No. 1's liabilities relating to metallic chemicals as a matter of law, it should be entitled to the benefits of Amchem No. 1's liability insurance.

The trial court rejected Henkel's argument. It found Henkel responsible for Amchem No. 1's torts, not as a matter of law, but because Henkel had voluntarily assumed that liability. The trial court also rejected Henkel's contention that the 1979 contract, under which Amchem No. 2 acquired the assets and liabilities of Amchem No. 1's metallic chemical business, assigned to Amchem No. 2 the benefits of insurance coverage for those liabilities. Moreover, the court ruled that any such assignment would be void without defendant insurers' consent. The trial court therefore entered summary judgment against Henkel.

The Court of Appeal reversed. Quoting Northern Ins. Co. of New York v. Allied Mut. Ins. (9th Cir. 1992) 955 F.2d 1353, 1357 (Northern Insurance), it held: The " 'right to indemnity followed the liability rather than the policy itself. As a result, even though the parties did not assign [the predecessor's insurance] policy in the agreement, the right to indemnity under the policy transferred to [the successor corporation] by operation of law.' " (Italics omitted.) We granted petitions for review by Rhone Poulenc and defendants.

III. HENKEL'S LIABILITY FOR INJURIES CAUSED BY AMCHEM NO. 1 ARISES FROM CONTRACT AND WAS NOT IMPOSED BY OPERATION OF LAW

Plaintiff Henkel here renews the argument made in the trial court that when it bought the metallic chemical product business (Amchem No. 2) from Union Carbide in 1980 it incurred liability as a matter of law for injuries caused by those products when they were being manufactured and distributed by Amchem No. 1. Because liability was imposed upon it as a matter of law, Henkel argues it should receive the benefits of Amchem No. 1's liability polices as a matter of law. (See Northern Insurance, supra, 955 F.2d at p. 1357.) Defendant insurers contend that the Ninth Circuit Court of Appeals' 1992 decision in Northern Insurance was wrong, and that later California cases show that under California law product line tort liability does not include any right to the insurance coverage for the tort. (See General Accident Ins. Co. v. Superior Court (1997) 55 Cal.App.4th 1444 [64 Cal. Rptr. 2d 781] (General Accident); Quemetco Inc. v. Pacific Automobile Ins. Co. (1994) 24 Cal.App.4th 494, 499-501 [29 Cal. Rptr. 2d 627] (Quemetco).) (1a) We need not resolve this conflict, because the record shows that Henkel's liability was not imposed involuntarily by law but assumed voluntarily by contract.

Henkel's argument why it should be entitled to Amchem No. 1's insurance protection as a matter of law depends on a showing that Henkel's tort liability was imposed upon it by law. Henkel has failed to make that showing. (2) As we explain, there are three situations in which a buyer of corporate assets may be liable for the torts of its predecessor, notwithstanding the purchaser's failure to assume liability by contract, but Henkel does not show that this case falls within any of these categories.

First, the buyer of corporate assets may be liable as a corporate successor if "[1] the transaction amounts to a consolidation or merger of the two corporations, [2] the purchasing corporation is a mere continuation of the seller, or [3] the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts." ( Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28 [136 Cal. Rptr. 574, 560 P.2d 3]; Beatrice Co. v. State Bd. of Equalization (1993) 6 Cal.4th 767, 778 [25 Cal. Rptr. 2d 438, 863 P.2d 683].) None of these circumstances is present here: Amchem No. 2 did not acquire Amchem No. 1's metallic chemical business by consolidation or merger. Amchem No. 2 was not a "mere continuation" of Amchem No. 1, because that doctrine does not apply "when recourse to the debtor corporation is available and the two corporations have ...


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