Paxton & Vierling Steel Co. v. Great Am. Ins.

• Court: U.S. District Court — District of Nebraska
• Writing for the Court: Theodore J. Stouffer, Omaha, Neb., for defendant
• Citation: Paxton & Vierling Steel Co. v. Great Am. Ins., 497 F. Supp. 573 (D. Neb. 1980)
• Decision Date: 29 September 1980
• Docket Number: Civ. No. 79-0-618.
• Parties: PAXTON & VIERLING STEEL CO., a corporation, Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, a corporation, Defendant.

497 F. Supp. 573

PAXTON & VIERLING STEEL CO., a corporation, Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, a corporation, Defendant.

Civ. No. 79-0-618.

United States District Court, D. Nebraska.

September 29, 1980.

Janet T. Tungland, Omaha, Neb., for plaintiff.

Theodore J. Stouffer, Omaha, Neb., for defendant.

MEMORANDUM

DENNEY, District Judge.

This matter is before the Court upon motions for summary judgment submitted by both plaintiff and defendant Filings # 11 and # 14, respectively.

Facts and Background

Defendant, Great American Insurance Company, issued a policy of liability insurance to plaintiff, Paxton & Vierling Steel Company (PVS). The policy (No. SLP X-XX-XX-XX) was effective for the period December 1, 1971 through December 2, 1972. Owen Equipment & Erection Company (OE & E) was a wholly-owned subsidiary of PVS throughout this period. OE & E was an additional named insured on the policy issued to PVS. The policy contained typical "non-assignability" and "no action against insurer" clauses (Policy SLP X-XX-XX-XX, Conditions, paragraphs 10 and 7, respectively).

On November 24, 1972, Geraldine Kroger, Administratrix of the estate of James D. Kroger, filed a Complaint against OE & E and PVS in the United States District Court for the District of Nebraska Civil No. 72-0-481. The Complaint as amended alleged that the decedent was electrocuted on January 18, 1972, and that OE & E's negligence in its operation of a crane supplied by it was the direct and proximate cause of the decedent's death. The defendant insurance company undertook the defense of OE & E and PVS, although PVS was dismissed on the Court's own motion early in the litigation. The case later reached the United States Supreme Court. On June 21, 1978, the Supreme Court dismissed Mrs. Kroger's Complaint on the basis that the federal district court lacked original subject matter jurisdiction.

Sometime in 1976 or 1977, OE & E and PVS merged, PVS being the surviving corporation. On November 1, 1978, Mrs. Kroger again filed suits as Administratrix of the estate of James D. Kroger against OE & E and PVS. These suits were instituted in federal district court and state district court in Iowa. Mrs. Kroger sought recovery in both actions for damages stemming from the alleged wrongful death of her husband in 1972. The defendant insurance company filed pleadings in both cases on behalf of OE & E and PVS. On January 17, 1979, the District Court of Pottawattamie County, Iowa, upheld a special appearance filed on behalf of OE & E and dismissed OE & E out of the suit. OE & E was dismissed from the state court action due to its merger into PVS.

This controversy once again comes before the Court as a result of PVS's filing a declaratory judgment action to establish that the defendant insurance company is obligated to defend PVS in the lawsuits filed by Geraldine Kroger, and to pay any judgments rendered against PVS in those lawsuits Filing # 1. PVS seeks declaratory relief because the insurance company maintains that the insurance policy does not afford coverage of the two Iowa lawsuits to PVS. In addition, the insurance company has demanded that PVS permit it to defend the Iowa cases under a reservation of rights.

The salient facts set forth above are not disputed by the parties. Based on these facts, both parties filed motions for summary judgment Filings # 11 and # 14. While not indicated on the face of its motion, the Court will treat defendant Great American's motion as one for partial summary judgment. In its reply brief in support of its motion for summary judgment, Great American notes that PVS has alleged facts that give rise to an argument that Great American is estopped from denying coverage due to its actions in defending PVS and OE & E in previous litigation instituted by Geraldine Kroger. Great American correctly concedes that estoppel raises a question of fact which would preclude the granting of a total summary judgment under Rule 56(c) of the Federal Rules of Civil Procedure. Great American takes the position that the Court may properly grant a partial summary judgment in its favor on the issue of whether the merger of OE & E and PVS resulted in PVS succeeding to the rights of OE & E under the insurance policy issued by Great American. The defendant insurance company is content to address the estoppel question at a later date in the event that it is granted partial summary judgment. Of course, on the other hand, PVS's position is that the estoppel question will be mooted if the Court grants summary judgment in its favor.

Discussion and Analysis

A. The Merger of OE & E and PVS

The most important issue in this case is the legal effect of the merger of OE & E and PVS, PVS being the surviving corporation. More specifically, the critical inquiry concerns the ramifications of the merger with respect to the insurance policy issued by the defendant.

Plaintiff and defendant agree that since OE & E and PVS were both Nebraska corporations, this case hinges on interpretation of the Nebraska Business Corporation Act provisions regarding mergers. In pertinent part, the statute provides:

Upon filing and recording in the office of the Secretary of State of the original of the articles of merger, the merger ... shall be effected.

When such merger ... has been effected:

. . . . .

(2) The separate existence of all corporations parties to the plan of merger or consolidation, except the surviving ... corporation, shall cease;

(3) Such surviving ... corporation shall have all the rights, privileges, immunities and powers and shall be subject to all duties and liabilities of a corporation organized under sections 21-2001 to 21-20, 134;

(4) Such surviving ... corporation shall thereupon and thereafter possess all the rights, privileges, immunities, and franchises, as well of a public as of a private nature, of each of the merging ... corporations; and all property, real, personal and mixed, and all debts due on whatever account, including subscriptions to shares, and all other choses in action, and all and every other interest of or belonging to or due to each of the corporations so merged ..., shall be taken and deemed to be transferred to and vested in such single corporation without further act or deed; ....

(5) Such surviving ... corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged ...; and any claim existing or action or proceeding pending by or against any of such corporations may be prosecuted as if such merger ... had not taken place, or such surviving ... corporation may be substituted in its place. Neither the rights of creditors nor any liens upon the property of any such corporation shall be impaired by such merger or consolidation;

Neb.Rev.Stat. § 21-2075 (Reissue 1977).

PVS's argument is clear. It maintains that the statutory provisions set up a two-way street. In other words, since under sub-section (5) PVS as the surviving corporation of the merger is required to assume all the liabilities of non-surviving OE & E (including the contingent liability represented by pending lawsuits brought by Geraldine Kroger), under sub-section (4) PVS should be allowed to succeed to the rights of OE & E under the insurance policy issued by the defendant. As support for its construction of Neb.Rev.Stat. § 21-2075 (Reissue 1977), PVS cites Chatham Corp. v. Argonaut Insurance Co., 70 Misc.2d 1028, 334 N.Y.S.2d 959 (1972); and Aetna Life & Casualty v. United Pacific Reliance Insurance Companies, 580 P.2d 230 (Utah 1978).

Defendant offers a radically different construction of Section 21-2075 as it relates to this case. Defendant contends that plaintiff's construction of the merger statute violates "the most fundamental tenet of insurance law," to wit, the existence of liability on the part of the insurer is predicated upon the existence of liability on the part of the insured. Defendant refers to PVS's argument that, while OE & E ceased to exist at the time of the merger and therefore no longer can be held liable for the alleged wrongful death of James Kroger, defendant as the insurer of the non-surviving corporation can still be held liable. Based on its interpretation of what it feels to be fundamental insurance law, defendant contends that plaintiff's construction of the merger statute is untenable, despite the seemingly clear succession of rights language contained in sub-section (4).

In addition to challenging what appears to be the straight-forward statutory language, defendant maintains that the two cases relied upon by PVS are distinguishable and therefore should be accorded little weight in construing the statute. In an effort to distinguish the two cases relied upon by PVS, defendant points to certain policy provisions. First, defendant cites the policy provisions regarding assignment. Paragraph 10 of the Conditions section of the policy states: "Assignment of interest under this policy shall not bind the company until its consent is endorsed hereon." Defendant argues that under plaintiff's interpretation of Section 21-2075, the merger of OE & E and PVS effectively constituted an assignment in contravention of the policy's express provisions. Defendant further asserts that it never consented to such an assignment.

Defendant also claims that plaintiff's statutory construction and case support is untenable due to the inclusion in the policy of a typical "no action" provision, which provides:

No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the insured's obligation shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company ....

Policy No. SLP X-XX-XX-XX, Conditions, paragraph 7. Defendant points to the fact that no judgment...