Insurance policies may be considered significant assets of a company engaged in a merger or acquisition. Although comprehensive general liability policies often contain an anti-assignment clause, such clauses normally are narrowly construed to bar assignment of rights under insurance policies only if the assignment expands the obligations of the insurer.
A typical policy may contain a clause that "assignment of interests under this policy shall not bind the [insuring] company until its consent is endorsed hereon..." While written assignments of insurance policies may be sought from insurers during the course of mergers or acquisitions, lack of such an assignment will not necessarily defeat coverage for the business entity remaining after the merger or acquisition.
Although assignments of a policy during the time the policy is in force may not be used to expand the coverage provided by the policy, coverage of events that took place before the assignment may be viewed as choses in action that may be assigned despite the anti-assignment clause in the policy.
Generally, policies of a company will remain with the company when it is acquired and then operated as a subsidiary. Despite its acquisition, the acquired company should remain covered under a pre-acquisition policy for pre-acquisition injuries it caused that are otherwise covered under the policy. Similarly, a company merged into a conglomerate should remain covered under pre-acquisition policies for pre-acquisition injuries. Even though the acquired company in form no longer exists, there has been no expansion of coverage under the policy issued by the insurer prior to the acquisition.
Companies acquiring other companies with coverage generally may not in effect obtain additional coverage if the policies of the acquired companies contain anti-assignment clauses. Thus, while a policy of the acquired company may be considered a choses in action that is assignable to the acquiring company, such an assignment is likely to be limited in effect by a court to assignment of coverage of damages from injuries caused by the acquired company prior to the acquisition.
In a spin-off, the company that originally obtained a policy remains able to obtain coverage under that policy. Thus, the company that is being spun off will want to seek a written assignment approval or an endorsement from the insurer naming the spin-off as an additional insured depending upon whether the companies intend for coverage to go with the company being spun off or to be retained by both companies. Then, in the event that both the original company and the spun-off company need coverage for an occurrence, the spun-off company will not be met with an assertion by the insurer that it is not the named insured or an additional insured in a policy with an anti-assignment clause.
Copyright 2009 LexisNexis, a division of Reed Elsevier Inc.
