Court Opinion

ID: 6789944
Source: CourtListenerOpinion
Date Created: 2022-07-21 01:09:15.155029+00
Date Added: 2024-06-11T16:03:01.899320
License: Public Domain

Pfeifer, J.,
concurring in part and dissenting in part.
{¶ 71} A majority of this court today agrees that an insurance policy’s indemnification coverage can be transferred post-loss regardless of any anti-assignment clause in the policy. There is a division within that majority as to whether coverage for the costs of a defense may also be so transferred. I would hold that coverage for the cost of a defense, as part of the chose in action, is always freely transferable post-loss.
{¶ 72} The majority’s determination that a chose in action (including the rights to indemnity and defense) arises at the time of a covered loss is decisive. As Justice O’Connor writes in her response to Question 2, “insurance policies are generally construed such that assignment of an interest is valid after the occurrence of the loss insured against, and the assignment is then regarded as a transfer of the chose in action, even in the face of an anti-assignment provision.” (Emphasis sic.) Once a loss has occurred that triggers rights under the policy, what is being transferred is not an interest in the policy, but rather something different, a chose in action. 2 Russ and Segalla, Couch on Insurance (3d Ed.2005), Section 34.25. A chose in action is a freely alienable property interest; thus, what is being transferred is an existing, intangible property right, not an interest in the policy. The policyholder is essentially transferring a cause of action based upon the policy rather than an interest in the policy. “[Assignment before loss involves a transfer of a contractual relationship while the assignment after loss is the transfer of a right to a money claim.” Id., Section 35:7.
{¶ 73} Since the predecessor here possessed a chose in action, the anti-assignment provisions of the policy are inapplicable. To a great extent, our answers to the questions posed in this case depend on how much we rely on the decision in Henkel Corp. v. Hartford Acc. & Indemn. Co. (2003), 29 Cal.4th 934, 129 Cal.Rptr.2d 828, 62 P.3d 69. In Henkel, the California Supreme Court determined that no chose in action existed at the time of the transfer because in that case the claims for defense and indemnity “had not been reduced to a sum of money due or to become due under the policy” and because the insurers “had not breached any duty to defend or indemnify” the named insured. Id. at 944, 129 Cal.Rptr.2d 828, 62 P.3d 69. That holding of no chose in action was elemental in the court’s determination that the rights to indemnity and defense were not transferable. The court held that since those rights were not choses in action, they could not be assigned without the insurer’s consent. Id.
*496{¶ 74} Here, this court correctly breaks with Henkel on the chose-in-action issue, holding that the rights to indemnity and defense are choses in action. That finding obviates the need for a consideration of the effect of the anti-assignment clause.
{¶ 75} The negation of the anti-assignment clause does not produce an unjust result for the insurer. The idea that an insurer would have to defend both the transferor and the transferee for the same risk is not sound. If the right to a defense has been transferred to a successor, the transferor no longer has that right. The right cannot both be transferred and retained. If some other party asserts a right to a defense, the matter can be resolved through a declaratory judgment action.
{¶ 76} That the successor entity was not a party to the original policy is a phantom problem. Even in the case of a company that has undergone no restructuring, the entity that avails itself of the policy could be much different from the one that purchased the policy. Personnel, management teams, and corporate focus can change in any company. In any case, the focus of the claim will be on the company as it was at the time of the triggering occurrence. As the court wrote in N. Ins. Co. of New York v. Allied Mut. Ins. Co. (C.A.9, 1992), 955 F.2d 1353, 1358:
{¶ 77} “The nature of the risk, rather than the particular characteristics of the defendant, will have the greater effect on defense costs. The extent and character of the defense will turn on the nature of the product itself and the attributes of the firm that manufactured the product. Aspects of the successor firm could affect the defense, but the shape of the defense will be determined largely by the characteristics of the risk originally insured. 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 the defense obligation if the successor firm does not fulfill its duty to aid in the defense.”
{¶ 78} Requiring courts to determine whether the transfer “places upon the insurer a materially changed duty or a materially increased risk” would protect insurers against a hypothetical problem and would impose an impractical and speculative test. Whether and how an insurer may be harmed is entirely more complex than the question the court should be considering in a fight over coverage: whether and to what extent the coverage was transferred. How will a court determine whether a risk is material or not? Will the court undergo the analysis even when no other potential insureds are seeking coverage? Is the relevant inquiry what the potential other insureds might do? Would a ten *497percent increase in risk be considered material? Twenty-five percent? If there is an increase in risk, should the result be that no defense is provided at all?
{¶ 79} The better approach is for a court to determine what was transferred when the chose in action was transferred. If the transfer itself somehow causes an increased risk for the insurer — if the risk is more than was bargained for between the insurer and the original insured — then the insurer should not be responsible for that increased risk. However, it should remain liable for what it did bargain for — the full extent of the coverage that would have applied to the original insured.
{¶ 80} Separating indemnification from defense costs within the chose in action is inconsistent. Both aspects of the coverage are a part of the transferred chose in action. Further, practical injustices result from such an approach. If indemnification coverage is freely transferable, but the costs of defense are not, any defense provided by the successor ultimately inures to the benefit of the insurer. Not only would the insurer not provide a defense, it would benefit from the defense the successor provides for itself. On the other hand, from the insurer’s perspective, even though the insurer remains liable for a large judgment through indemnity, it is powerless to direct the defense.
{¶ 81} Ultimately, the most damaging aspect of this court’s failure to find an absolute right to the transferability of a chose in action is its effect on economic activity. The continuity of liability coverage is especially important in manufacturing. Ohio is a manufacturing state, ranking second among the 50 states in total manufacturing jobs. As of 2004, over 780,000 Ohioans held jobs in manufacturing. U.S. Census Bureau, 2004 Annual Survey of Manufactures, Geographic Area Statistics, Statistics for All Manufacturing by State, available at http://factfinder.census.gov/servIet/IBQTable?_bm=y&-_bm=y&-ds_name= AM0431AS101. We still make things here; Ohioans do not spend their work hours selling insurance to each other. The manufacturing process can be dirty and dangerous, and our society’s willingness to accept the negative by-products of the manufacturing process changes over time. A manufacturer must realize that the accepted practices it is engaged in today may become the basis of tort recovery or government-imposed cleanup later. An insurer also signs on for that. And the insurer’s role in providing coverage for former wrongs is a very important one for long-term economic activity. The predictability of liability coverage is essential for businesses to move forward. The rule of post-loss assignment has played an important role in our economy:
{¶ 82} “[A] major rationale for commercial insurance is to facilitate economic activity and growth by providing risk management protection for economic actors. * * * In the modern American economy, mergers, acquisitions, and sales are part of corporate life. For the most part, economists approve of this activity *498because it allows the marketplace to allocate resources to their most profitable uses. To the extent that insurance protection (for past but possibly unknown losses) may be more freely assigned as part of corporate recombinations, this lowers transaction costs and facilitates economic activity and wealth enhancement. Consequently, the general rule permitting post-loss assignment is a good rule — -which is why the courts have crafted it over the years even though it appears to contradict the clear text of many insurance policies and the courts’ expressed fidelity to contract language. The post-loss exception to the general rule of restricted insurance assignability is a venerable rule borne [sic] of experience and practicality.” 1 Stempel, Law of Insurance Contract Disputes (2d Ed., 1999 Supp.2004), Section 3.15[d].
{¶ 83} We should not replace a “venerable rule” born of “experience and practicality” with a new rule born of speculation and impracticality. Ohio law should allow post-loss assignment of insurance benefits for both indemnity and defense costs. The right to a defense under an insurance policy is a crucial right, and this court’s decision — or indecision — puts that right in doubt in countless cases where corporations have restructured, reorganized, or sold assets.
{¶ 84} As for Question 3: In this case, there was a valid, direct assignment of assets and liabilities to the successor entity. But corporate succession is often more labyrinthal or fractured. The third question posed herein asks whether the assignment of insurance benefits follows by operation of law whenever liabilities are transferred between entities. I would hold that “a corporation which succeeds to liability for pre-acquisition operations of another entity acquires rights of coverage by operation of law.” Glidden Co. v. Lumbermens Mut. Cas. Co., Cuyahoga App. No. 81782, 2004-Ohio-6922, 2004 WL 2931019, ¶ 64. My reasoning for that holding is more fully set forth in my dissenting opinion in Glidden Co. v. Lumbermens Mut. Cas. Co., 112 Ohio St.3d 470, 2006-Ohio-6553, 861 N.E.2d 109, 2006 WL 3743025.
Resnick, J., concurs in the foregoing opinion.