Court Opinion

ID: 9747091
Source: CourtListenerOpinion
Date Created: 2023-08-27 14:56:27.916934+00
Date Added: 2024-06-11T07:25:19.976505
License: Public Domain

JOHNSON, J.
I respectfully dissent.
I disagree with the majority opinion’s criticism of Northern Ins. Co. of New York v. Allied Mut. Ins. (9th Cir. 1992) 955 F.2d 1353 and the resulting conclusion old Quemetco’s liability insurance did not transfer to new Quemetco by operation of law.
*504I deem Northern Ins. persuasive precedent on the question before this court. The majority appears to concede that if correctly decided Northern Ins. indeed supports the transfer of liability coverage from old Quemetco to new Quemetco. The majority, however, deems Northern Ins. to be wrongly decided because it failed to consider two “critical” California decisions the majority argues reach a contrary position. I disagree, finding neither of these cases require a rejection of Northern Ins. or its application to the instant case.
I happened to have authored one of the two California opinions the majority feels the Ninth Circuit improperly ignored in Northern Ins.—Oliver Machinery Co. v. United States Fid. & Guar. Co (1986) 187 Cal.App.3d 1510 [232 Cal. Rptr 691], In my view, Oliver has no relevance to the issues before us in this case nor to the principles enunciated in Northern Ins. Nor do I find the other case, Peñasquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180 [283 Cal.Rptr. 135, 812 P.2d 154], contradicts Northern Ins. in any significant way.
Oliver involves an issue so far removed from the question resolved in Northern Ins. I would have found it remarkable if the Ninth Circuit had bothered to mention it, even in a footnote, in its opinion. In Oliver, this court was concerned with the issue of the successor corporation’s insurance policy and whether it covered an “additional insured” on that contract, a distributor, for injuries caused by the predecessor corporation’s products when the contract specifically limited coverage to the successor corporation’s products. This is entirely unrelated to the question of whether the benefits of the predecessor company’s insurance policy passed to the successor by operation of law as to injuries which occurred before the successor bought out the predecessor. The former issue, of course, is a matter of construction of the contract the “additional insured” signed with the insurance company.1 But that has nothing to do with the issue of whether and which benefits pass to the successor corporation from the predecessor corporation related to injuries the predecessor corporation’s actions already have caused.
The rationale for holding the benefits of indemnification and of defense pass by operation of law is thoroughly explained in the Northern Ins. opinion *505and will be discussed below. In no sense is that rationale inconsistent with the holding and rationale of Oliver. Far from ignoring some controlling—or even relevant—California authority, the Northern Ins. court quite properly paid no heed to an opinion which had no bearing on the issues before it. In my view, if the Ninth Circuit had bothered to mention the Oliver opinion I drafted the only appropriate mention would have been to distinguish it as irrelevant to the Northern Ins. case.
Peñasquitos, Inc. v. Superior Court, supra, 53 Cal.3d 1180 appears even less relevant to the issues the Northern Ins. court decided. At the most, Peñsquitos held a dissolved predecessor corporation’s insurer may remain responsible to defend and indemnify the predecessor corporation for any liability it incurs as a result of claims filed after dissolution activities. (53 Cal.3d at p. 1194.)2 That possibility has no bearing on whether the predecessor corporation’s coverage passes to and protects the successor corporation as to that corporation’s liability for injuries arising out of the predecessor corporation’s activities. Assuming the predecessor’s insurance company is required to indemnify the predecessor as well as the successor, the total loss it is required to pay will be the same. However the total burden of that liability ultimately may be apportioned between the predecessor and successor corporations, at the worst the predecessor’s insurer will only be responsible for that total obligation, that is, the same sum for which it would have been held liable had the successor never sold out to the successor corporation. So contrary to the majority (maj. opn., ante, at pp. 502-503) there is no inequity in requiring the predecessor corporation’s insurer to cover the successor corporation for harm the predecessor caused while in control of the operation. Accordingly, Peñasquitos in no way can be read to affect the issues determined in Northern Ins 3
Which brings us to Northern Ins. Co. of New York v. Allied Mut. Ins., supra, 955 F.2d 1353, a recent decision decided under California law that *506resolves nearly all the issues in this case and does so contrary to the majority opinion. In that case Brown-Forman bought out California Cooler under an agreement California Cooler would reimburse Brown-Forman for any liability claims arising from presale activities. A child born before the sale filed suit against Brown-Forman after the sale alleging fetal alcohol syndrome attributable to California Coolers his mother consumed during her pregnancy. This underlying lawsuit ended in a voluntary dismissal so only the costs of defense were at issue. The predecessor’s insurance company was sued for contribution to those costs.
In its opinion, the Ninth Circuit first conceded the predecessor’s insurance policy was not among the assets assigned and transferred under the sales agreement between the predecessor and successor corporations. This was because the agreement expressly excluded “any contracts that require consent to assign. By its terms, Allied’s policy required California Cooler to obtain its consent before assigning the policy.” (955 F.2d at p. 1357.) The court pointed out the policy benefits as opposed to the policy itself could have been transferred without the predecessor insurance company’s consent. Nonetheless, it concluded those benefits were not transferred because “. . . we find little evidence of any intent to transfer these policy benefits.” (Ibid.) (Presumably this was because the agreement provided the predecessor corporation itself would be responsible to indemnify the successor for any liability claims attributable to presale activities.)
But the Ninth Circuit then concluded that neither the sales agreement between the predecessor and successor corporations, nor the intent of these parties, nor the terms of the predecessor corporation’s contract with its insurance company ultimately controlled. Instead the benefits of the policy transferred by operation of law. Since the doctrine of “successor liability” transferred the liability from the predecessor to the successor corporation, the right to indemnity followed as well. “[T]he right to indemnity arising from [the predecessor corporation’s insurance policy] transferred together with the potential liability. This right to indemnity followed the liability rather than the policy itself. As a result, even though the parties did not assign [the predecessor corporation’s] policy in the agreement, the right to indemnity under the policy transferred to [the successor corporation] by operation of law.” (955 F.2d at p. 1357.) (It should be noted this transfer took place even though the predecessor corporation remained responsible under the sale agreement for indemnifying the successor corporation for those same losses and thus the predecessor corporation’s insurer presumably could end up paying litigation costs for both parties.)
Having established this principle, the Ninth Circuit shifted to the further question whether it extended to the cost of defense as well as the indemnification of loss, especially in the face of “no assignment” and “cooperation” *507clauses in the insurance contract. The court had no difficulty with this issue either. “[T]he rationale for honoring ‘no assignment’ clauses vanishes when liability arises from presale activity. . . . Ml . . . [f] . . . Admittedly, defense costs could balloon if the successor firm failed to cooperate in the defense. Inasmuch as the successor firm was not a party to the original policy, the risk of noncooperation arguably increases. Yet, the insurer is protected against this risk because it is freed of its defense obligation if the successor firm does not fulfill its duty to aid in the defense.” (955 F.2d at p. 1358.)
While it is true Northern Ins. involved “successor liability” in the context of a product liability case, there is no reason its rationale would fail to apply where “successor liability” was imposed in a different sort of case. Here the court already determined “successor liability” applies to this action under CERCLA, even though the harmful acts took place years before Congress enacted CERCLA. The principle that “insurance benefits follow liability” makes equal sense in CERCLA cases as it does in product liability cases. If the law holds the successor liable for its predecessor’s tortious acts—no matter the nature of those acts—then the law likewise transfers the insurance benefits covering liability for those acts to the successor. And as Northern Ins. emphasizes, it does so irrespective of whether the predecessor remains ultimately liable for the financial burdens its tortuous acts impose on the successor. And, again as Northern Ins. emphasizes, the law transfers the insurance benefits along with liability even if the predecessor’s contract with its insurer expressly disclaims such responsibility without its consent.
The majority attempts to make something of the fact the particular causes of action involved in the underlying lawsuit here were predicated on CERCLA, a statute which did not come into existence until several years after the predecessor last dumped toxic chemicals into Stringfellow and several years after the predecessor corporation sold out to the successor corporation. This conceivably might be a relevant consideration were the sale contract and the insurance contract the determinative factors. In that instance, whether the “causes of action” already were in existence and what the parties and the insurance company intended and could have anticipated, all of these issues might have had some bearing on whether the insurance benefits for the CERCLA causes of action transferred to the successor corporation. But here the insurance benefits transferred to the successor by operation of law along with the liability for the presale acts of the predecessor.
What is relevant is whether the predecessor’s acts occurred before the sale, not whether they matured into cognizable causes of action before that *508time. The law of torts (and strict liability) is constantly changing, either through statutory change (as it did here) or through judicial opinions. Because of a new statute or a new appellate decision, an act which gives rise to a cause of action today may not give rise to a cause of action next year. Conversely, because of another statute or appellate decision, an act which does not give rise to a cause of action today may become the basis of a cause of action next year—or next decade. If so, the person or entity who committed the act may be held liable in tort or strict liability for that past conduct and the insurance company, in turn, is responsible to defend and indemnify the tortfeasor for that conduct.
The predecessor corporation’s toxic dumping into Stringfellow occurred at a time when the only possible basis of liability was some sort of common law action for nuisance or negligence. Years later, however, along came one of those frequent changes in the law, in this instance a statutory change, making those same acts of dumping subject to an added cause of action in strict liability. While this may have been a more dramatic change then most, it was far from unique in the history of the law. This sort of sudden expansion in an insured’s susceptibility to lawsuit is one of the risks against which insurers insure.
Had the predecessor corporation not sold out can there be any doubt its insurer would have had a duty to defend and indemnify that corporation in the strict liability lawsuits filed under CERCLA, even though those suits were based on a statute enacted years after the corporation’s toxic dumping? Since there was a sale, however, the successor corporation was found liable under CERCLA for that toxic dumping, on a “successor liability” theory.4 Further, because the predecessor corporation’s insurer would have been responsible for its insured’s acts of toxic dumping even though its liability would have been based on CERCLA, a law passed years after the dumping, it likewise is responsible for defending and indemnifying the successor corporation for its liability under CERCLA. As Northern Ins. emphasized, insurance benefits follow liability. And, I submit, that principle extends to liability which is expanded by legal changes occurring after the transfer takes place.
I conclude the Ninth Circuit decided Northern Ins. correctly and its rationale is consistent with California law. In particular I agree with its *509conclusion insurance benefits follow liability in “successor liability” situations by operation of law. For reasons explained above, I further conclude this principle applies to all “successor liability” situations not just “product liability” cases and extends to causes of action based on legal changes occurring after the successor buys out the predecessor. All of this leads me to conclude the trial court erred in granting summary judgment against the successor corporation and in favor of the predecessor corporation’s insurance companies.5
A petition for a rehearing was denied May 24, 1994, and appellant’s petition for review by the Supreme Court was denied July 14, 1994. Mosk, J., was of the opinion that the petition should be granted.

Of further note, in the Oliver opinion this court did not even decide the question whether the successor corporation’s insurance company has a duty to indemnify and defend that company for injuries the predecessor corporation causes, either by operation of law or by contract or otherwise. “We do not, and need not, reach the question whether [the successor corporation’s insurer] has a duty to defend and indemnify [the successor corporation] for injuries caused by products manufactured by [the predecessor corporation].” (Oliver Machinery Co. v. United States Fid. & Guar. Co, supra, 187 Cal.App.3d at p. 1519.) The Oliver opinion dealt solely with the coverage the policy was deemed to extend to a third party, the “additional insured” who was a distributor and neither the predecessor nor the successor corporation. Consequently, the issue actually decided in Oliver was yet another step removed from that before the Northern Ins. court.

The Supreme Court hinted, however, in Peñasquitos that a claim based on a statute enacted after dissolution might not be covered by the dissolved corporation’s insurer. (53 Cal. 3d at p. 1193 [distinguishing Levin Metals Corp. v. Parr-Richmond Terminal Co. (9th Cir. 1987) 817 F.2d 1448, which had held a dissolved corporation could not be sued under CERCLA because it had dissolved some nine years before CERCLA’s enactment].)

As will be discussed in more detail below (see pp. 506-507, post), there is a further reason Peñsaquitos has no relevance given the Northern Ins. rationale. In the latter case, the predecessor corporation actually contracted in the sale agreement to indemnify the successor corporation for its “successor liability.” The Northern Ins. court found this had no effect on its rationale, that “insurance benefits follow liability” by operation of law. The fact Peñsaquitos may impose some ultimate liability on defunct predecessor corporations provides no more reason to deviate from the principle Northern Ins. explains than does the predecessor’s ultimate contractual liability which the Ninth Circuit found irrelevant in its Northern Ins. opinion.

“Successor liability may be imposed on corporations that have merged with, consolidated, or otherwise continued, the business of a corporation that is a responsible party under CERCLA. . . . Substantial continuity is primarily a question of fact. Among the factors that should be considered in making the determination are whether the business of both the corporations is essentially the same, . . . and whether the new entity has the same production processes, produces the same products, and essentially has the same body of customers.” (Lathrop, Insurance Coverage for Environmental Claims (1992) § 2.06[4][a][ii], fns. omitted.)

Since I am so thoroughly convinced the insurance benefits transferred by operation of law, I find it unnecessary to discuss the alternative grounds these benefits transferred under the terms of the sale. (See maj. opn., ante, at pp. 501-503 for discussion of this grounds for fixing responsibility on the predecessor corporation’s insurance companies.) While I have some disagreement with the majority’s discussion of this series of issues, I see no reason to prolong this dissent. As emphasized earlier (see ante, at p. 506) these issues of consent, intent, etc., are irrelevant and unnecessary to a proper resolution of this appeal.