General Accident Ins. Co. v. Superior Court

Decision Date25 June 1997
Docket NumberNo. A076084,A076084
Citation64 Cal.Rptr.2d 781,55 Cal.App.4th 1444
CourtCalifornia Court of Appeals Court of Appeals
Parties, 97 Cal. Daily Op. Serv. 5073, 97 Daily Journal D.A.R. 8111 GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA et al., Petitioners, v. The SUPERIOR COURT of Alameda County, Respondent; WESTERN MacARTHUR COMPANY, Real Party in Interest.

Paul E.B. Glad, Sonnenschein Nath & Rosenthal, Jeffrey N. Haney, Rebecca B. Aherne, Bishop, Barry, Howe, Haney & Ryder, John W. Keker, Keker & Van Nest, San Francisco, Stephen G. Schrey, Crosby, Heafey, Roach & May, Oakland, for Petitioners.

No appearance for respondent.

Tom M. Freeman, David M. Halbresch, Edith M. Hofmeister, Thomas M. Peterson, Brobeck, Phleger & Harrison, San Francisco, for real party in interest.

JONES, Associate Justice.

This mandate proceeding raises the question whether a finding of corporate successor liability for asbestos torts entitles the liable successor, as a matter of law, to the insurance coverage of the predecessor corporation. We hold the successor corporation is not entitled by operation of law to the predecessor's insurance coverage.

Petitioners are three insurance companies who are defendants in an action for declaratory relief in which plaintiff Western MacArthur Company, real party herein, seeks a judicial determination that petitioners have duties to defend and indemnify Western MacArthur in personal injury actions arising from asbestos torts. Well over a decade ago, Western MacArthur was found to be the successor corporation to Western Asbestos Company for purposes of product liability, and thus became liable in tort for injuries arising from Western Asbestos' distribution of asbestos products. This Court affirmed the finding of successor liability. (Kaminski v. Western MacArthur Co. (1985) 175 Cal.App.3d 445, 220 Cal.Rptr. 895 (Kaminski ).) Subsequently, Western MacArthur filed this action for declaratory relief against petitioners, who insured Western Asbestos before the corporate takeover. Western MacArthur claims a right to Western Asbestos' insurance coverage by operation of law. Petitioners moved for summary judgment on the ground that petitioners had only insured Western Asbestos, not Western MacArthur, and Western MacArthur had confused tort liability with the contractual relationship of insurer and insured. The superior court denied the motion, ruling that the Western Asbestos insurance coverage transferred to Western MacArthur by operation of law as a consequence of the finding of successor tort liability. We disagree. We conclude a finding of successor liability in tort does not create from whole cloth an insurance relationship between strangers, and insurance coverage under these circumstances does not transfer by operation of law. Accordingly, we issue the peremptory writ.

I. FACTS

The story of this case begins at the turn of the century. The 12-year-old Kaminski decision serves as a useful reference work.

"The Western Asbestos Company ... was formed in the early 1900's, and became a Bay Area distributor of Johns-Manville asbestos products in 1930 or 1932. The company established a reputation as a reliable business. By 1965, it was suffering financial setbacks and was in urgent need of operating capital." (Kaminski v. Western MacArthur Co., supra, 175 Cal.App.3d at p. 451, 220 Cal.Rptr. 895.)

"Rather than dissolve the corporation and lose everything, [Western Asbestos'] three stockholder-directors ... contacted ... the MacArthur Company of St. Paul, Minnesota ..., with an offer to sell Western [Asbestos] to MacArthur [Company]. MacArthur [Company] distributed building materials owned a subsidiary which distributed Johns-Manville asbestos products, and had maintained a relationship with the Johns-Manville Company dating back to the early 1900's. MacArthur [Company] eventually became the parent corporation to Western MacArthur Company...." (Kaminski at p. 451, 220 Cal.Rptr. 895.)

Between 1965 and 1967, Western MacArthur took over Western Asbestos in such a fashion that Western MacArthur was subsequently found by the Alameda County Superior Court to be liable for Western Asbestos' torts as a successor corporation under Ray v. Alad Corp. (1977) 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 [Ray v. Alad ]. Western MacArthur assumed all of Western Asbestos' contracts and retained 45 of its 50 employees. (Kaminski at p. 453, 220 Cal.Rptr. 895.) "Western MacArthur used Western's [Asbestos'] customer lists in conducting its new business. Western MacArthur sent a letter to Western [Asbestos] customers asking if it may 'continue to serve' them, stressing that the new company had 'the same experienced personnel' and offered 'the same products, engineering and contracting services.' " (Ibid.)

"Western MacArthur continued to supply the same products and services as Western [Asbestos]. It employed the same sales personnel, warehousemen, truck drivers, and estimators. Johns-Manville remained the primary supplier, and the product line and shipyard work remained essentially unchanged. Orders addressed to 'Western Asbestos' were filled by Western MacArthur. Western MacArthur capitalized on Western's [Asbestos'] reputation. Prior to the formation of Western MacArthur, people referred to 'Western Asbestos' as 'Western'; the verbal shortform continued to be used in reference to 'Western MacArthur.' " (Kaminski at p. 453, 220 Cal.Rptr. 895.) 1

The trial court in Kaminski imposed successor liability upon Western MacArthur for Western Asbestos' product liability torts, finding that " 'the business being conducted by Western MacArthur when it opened its doors in June, 1967, was virtually the same as the business which Western Asbestos had been conducting through May, 1967,' and that 'under the facts of this case Western MacArthur should bear the burden for defective products sold or distributed by Western Asbestos.' " (Kaminski at p. 455, 220 Cal.Rptr. 895.)

In Kaminski, we applied the rule of Ray v. Alad to the Western MacArthur takeover and affirmed the trial court's decision. Ray v. Alad sets forth a narrow exception to the rule against successor liability for a predecessor corporation's torts. It permits successor liability for the defective products of a predecessor corporation where (1) the successor's takeover of the predecessor virtually destroys the plaintiff's remedies against the predecessor; (2) the successor corporation is able to assume the predecessor's risk-spreading role; and (3) the successor's enjoyment of the benefit of the predecessor's good will makes it fair to impose the burden on the successor of responsibility for the predecessor's defective products. (Kaminski at p. 454, 220 Cal.Rptr. 895; see Ray v. Alad, supra, 19 Cal.3d at p. 31, 136 Cal.Rptr. 574, 560 P.2d 3.)

Kaminski concluded: "Western MacArthur[ ] succeeded to the operations, goodwill, customer lists, and a name similar to 'Western Asbestos.' The essence of the takeover resulted in the transfer of assets and goodwill sufficient to enable Western MacArthur to capitalize on its predecessor's industry and reputation and continue distribution of Johns-Manville asbestos products.... [T]he transaction ... caused or at least substantially contributed to the absence of Western [Asbestos] from the recovery pool of product liability plaintiffs, and the destruction of ... Kaminski's remedies against it." (Kaminski at p. 458, 220 Cal.Rptr. 895.)

In the aftermath of Kaminski, Western MacArthur was sued in thousands of cases for asbestos-related injuries traceable to Western Asbestos products. When its own policy limits (approximately $90 million) ran out, Western MacArthur sought the insurance coverage which had been issued to Western Asbestos prior to the takeover. Petitioners General Accident Insurance Company of America, United States Fidelity & Guaranty Company, and Argonaut Insurance Company purportedly issued comprehensive general liability insurance policies (CGL) to Western Asbestos from 1948 to 1967. 2 Petitioners had never insured Western MacArthur, and refused that entity's request for coverage.

Western MacArthur then commenced the instant proceeding in declaratory relief, naming petitioners as defendants. Its complaint alleges the existence of the 1948-1967 Western Asbestos CGL policies, on information and belief. The complaint further alleges that copies of the policies have not yet been located but, again on information and belief, the policies were "identical or substantially similar" to standard-form policies. The Western Asbestos policies allegedly had provisions similar to the standard-form clauses providing coverage for an "occurrence," defined to include "injurious exposure to conditions" resulting in injury.

Western MacArthur further alleges that it has 2,000 asbestos-related injury claims against it, and has "closed or settled" 8,000 more. These 10,000 claims have resulted in the expenditure of $93 million, a figure which approximates Western MacArthur's own insurance coverage. Western MacArthur, which continued to distribute asbestos products after 1967, does not specifically allege that all 10,000 claims are traceable only to Western Asbestos products. Rather, Western MacArthur describes itself as "ha[ving] been sued in thousands of cases" for injuries from Western Asbestos products. The complaint never specifically articulates a theory on which the insurers are obligated to defend and indemnify Western MacArthur, a party they did not insure.

Petitioners moved for summary judgment on Western MacArthur's complaint, arguing that there was no insured-insurer contractual relationship between them and Western MacArthur, and that Western Asbestos' insurance coverage did not transfer to Western MacArthur by operation of law by virtue of the finding of successor liability affirmed in Kaminski. Western MacArthur opposed the motion by arguing...

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