Court Opinion

ID: 6789945
Source: CourtListenerOpinion
Date Created: 2022-07-21 01:09:15.158176+00
Date Added: 2024-06-11T16:03:01.902140
License: Public Domain

Lanzinger, J.,
concurring in part and dissenting in part.
{¶ 85} Because I disagree fundamentally with the lead opinion’s analysis as to the first certified question, I respectfully dissent and would answer that question as follows: Pilkington’s demand for defense and indemnification is not a chose in action.
{¶ 86} After accepting the characterization of Pilkington’s demands for defense and indemnity as a “chose in action” and holding that the chose arises at the time of the “covered loss,” the lead opinion holds that a nonparty to an insurance contract may avoid an anti-assignment clause and be indemnified and potentially *499defended under the policy. Such holdings that extend insurance coverage contrary to the contracting parties’ express consent erode the freedom of contract and may have significant consequences for insurers and insureds alike. I would hold that a policyholder’s right to defense and indemnity under a third-party liability insurance policy is not, by itself, a chose in action that may be transferred without insurer consent despite an anti-assignment clause.
{¶ 87} This is not a case of insurers who obtain a windfall through insurance forfeiture. No one disputes that Libbey-Owens-Ford Glass Company (“LOF”), now known as Aeroquip Vickers, Inc. (“Aeroquip”) currently owns the general liability policies covering LOF’s glass-manufacturing business before Pilkington’s acquisition and that Aeroquip itself has pending claims3 for coverage under these policies. Nor is it disputed that anti-assignment clauses prevent the unilateral transfer of “interest” in the policies and that Pilkington was not assigned the policies or added as a named insured. Yet despite being a nonparty to the contracts and unnamed as an insured, Pilkington seeks insurance defense and indemnity for environmental liabilities arising from LOF’s previous activity. Pilkington argues that it has a chose in action or, in the alternative, that insurance coverage should transfer to it by operation of law.
Chose in Action
{¶ 88} A “chose in action” is defined generally as a “a proprietary right in personam.” Black’s Law Dictionary (8th Ed.2004) 258. We explained, in an early case allowing a judgment creditor to reach the debtor’s unliquidated property-damage claim against a third party, that the term “chose in action” may apply to the right to bring an action in tort and in contract: “[W]hile * * * a ‘chose in action’ is ordinarily understood [to be] a right of action for money arising under contract, the term is undoubtedly of much broader significance, and includes the right to recover pecuniary damages for a wrong inflicted either upon the person or property. It embraces demands arising out of a tort, as well as causes of action originating in the breach of a contract.” (Emphasis added.) Cincinnati v. Hafer (1892), 49 Ohio St. 60, 65, 30 N.E. 197.
{¶ 89} This concept is misconstrued in the lead opinion when it tries to pinpoint when a chose in action becomes enforceable in the insurance context. A chose in action is already an accrued right, not a mere expectancy that later ripens or becomes enforceable. As expressed in Hafer, a chose in action arises when money is due under the contract or there is a breach of a contract leading to a cause of action. The lead opinion, however, states that a chose in action arises at the time of a covered loss and cites for this proposition a case involving the *500probate disposition of a contested but fixed sum of insurance proceeds due to a casualty loss. In re Estate of Ray, 6th Dist. No. WD-02-049, 2003-Ohio-2001, 2003 WL 1904412. But Ray is distinguishable because the chose in action arose under the casualty policy upon the property damage when the owner had the right to receive insurance proceeds directly. In contrast, in the general commercial liability policies here, the insurers have agreed to defend and indemnify Aeroquip against claims brought by third parties for LOF’s activities during a stated period of coverage.
{¶ 90} By asserting that a chose in action is created upon a “covered loss,” the lead opinion allows Pilkington to avoid the anti-assignment clause and obtain the benefits of the insurance contracts. It relies on an exception to the general rule: “While the general rule regards liability and indemnity policies as non-assignable personal contracts, assignment is valid following occurrence of the loss insured against and is then regarded as chose in action rather than transfer of actual policy.” 2 Russ & Segalla, Couch on Insurance (3d Ed.2005), Section 34:25.
{¶ 91} The cases in which assignment happens after the occurrence of “the loss insured against” usually involve transfer of rights from the insured to an injured third party. For example, an insured employer, sued for intentional tort, who eventually settled and assigned its rights to collect the settlement amount under the company’s policy to the injured employee, did so without contravening the anti-assignment provision because the court construed the clause as prohibiting assignment of the policy rather than an accrued claim. Ficrentino v. Lightning Rod Mut. Ins. Co. (1996), 114 Ohio App.3d 188, 194-195, 682 N.E.2d 1099. The anti-assignment clauses here are broader and refer to an “interest,” which includes a chose in action.
{¶ 92} To determine whether Pilkington’s demand constitutes a chose in action, I would instead ask whether a sum is due or whether the insurer has breached its obligation to the insured, applying the reasoning of 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 rejected a successor corporation’s attempt to avoid a consent-to-assignment clause when the event giving rise to the liability occurred prior to the assignment. The court reasoned that at the time of the unilateral assignment, the insurers’ duty to defend and indemnify had not accrued because the “claims had not been reduced to a sum of money due or to become due under the policy [and the insurers] had not breached any duty to defend or indemnify [the predecessor corporation].” Id. at 944, 129 Cal.Rptr.2d 828, 62 P.3d 69.
{¶ 93} Henkel’s reasoning was later adopted in a case in which the acquiring company sought to avoid the consent-to-assignment provision because the loss (i.e., pollutants allegedly causing environmental damage being released on the *501property) had already occurred. Century Indemn. Co. v. Aero-Motive Co. (W.D.Mich.2003), 318 F.Supp.2d 530, 539. The court also determined that at the time of the purported assignment, the selling company did not have a claim or accrued cause of action under the policies to assign, because even if a discharge of pollutants had occurred before the assignment, the damages associated with the environmental cleanup were not assessed until almost two decades later. Id. at 540. Because no claim had been made against the seller at the time of the transfer, the seller had no claim against its insurers for defense or indemnification under the policies. Id.
{¶ 94} Similarly, when LOF transferred certain liabilities and assets to LOF Glass, Inc., which Pilkington voluntarily acquired when it purchased all the shares of LOF Glass, Inc. in 1986, LOF did not have any accrued rights against its insurers. LOF had no outstanding judgment that the insurers were required to pay on its behalf and had not been refused any defense. All LOF had were the policies themselves, which were not part of the transfer. Thus, a chose in action was never created by the time of the 1986 transfer because no sum was due, and the insurance companies had not breached any duty owed to LOF.4
{¶ 95} Unless or until there is such a breach of the insurance contract, there is no accrued right under the policy, whether it be called “chose in action” or not. Accordingly, I would hold that Pilkington’s demand does not constitute a chose in action.
Anti-assignment Clause
{¶ 96} All of the policies contain language prohibiting the assignment of “interest” under the policy without the insurers’ consent. This prohibition appears simple enough. If there is no chose in action, there is nothing to assign. As the district court observed in its order of certification to this court, if the “answer to [the first] question is ‘no,’ it is not necessary to answer Question Two.”
Transfer by “Operation of Law”
{¶ 97} The general rule of successor liability states that the purchaser of a corporation’s assets is not liable for the torts of the seller corporation. Flaugher v. Cone Automatic Mach. Co. (1987), 30 Ohio St.3d 60, 30 OBR 165, 507 N.E.2d 331. The exceptions to the rule are inapplicable here, and the lead opinion properly rejects the premise of N. Ins. Co. of New York v. Allied Mut. Ins. Co. (C.A.9, 1992), 955 F.2d 1353, because Ohio does not accept the product-line *502successor liability theory. In this case, Pilkington’s potential liability arises from its 1986 share exchange agreement with LOF.
Connelly, Jackson & Collier, L.L.P., Steven R. Smith, and Tammy Geiger Lavalette; Covington & Burling, Mitchell F. Dolin, Seth A. Tucker, and Ann-Kelley Kemper, for petitioner.
Amelia A. Bower; Plunkett & Cooney, P.C., Kenneth C. Newa, and Mary Massaron Ross; Manahan, Pietrykowski, Bamman & Delaney and Stephen E. House, for respondent Liberty Mutual Insurance Company.
Gibson, Dunn & Crutcher, L.L.P., Gary L. Justice, and Andrew Z. Edelstein; Hahn Loeser & Parks, L.L.P., and Arthur M. Kaufman, for respondent Travelers Casualty & Surety Company.
Kirkpatrick & Lockhart Nicholson Graham, L.L.P., Thomas E. Bisric, and James E. Scheuermann; Cooper & Walinski, L.P.A., Joseph P. Thacker, and John K. Nelson, for respondents Aeroquip-Vickers, Inc. and Eaton Corporation.
McCarthy, Lebit, Crystal & Liffman Co., L.P.A., David A. Schaefer, and Charles P. Royer; White & Williams, L.L.P., Patricia B. Santelle, Peter Rosenthal, and Joseph M. Kuffler, for respondents OneBeacon America Insurance Company and Northern Assurance Company of America, Inc.
*502{¶ 98} I believe that the contractual obligation defines the relationship between the parties when the liability arises as a matter of contract. Red Arrow Prods. Co., Inc. v. Emps. Ins. of Wausau (App.2000), 233 Wis.2d 114, 132-134, 607 N.W.2d 294; Gen. Acc. Ins. Co. v. Alameda Cty. Super. Court (1997), 55 Cal.App. 4th 1444, 1454-1455, 64 Cal.Rptr.2d 781; Quemetco, Inc. v. Pacific Auto. Ins. Co. (1994), 24 Cal.App.4th 494, 500-503, 29 Cal.Rptr.2d 627.
{¶ 99} Insurance is a contract between the insurer and the insured. Ohayon v. Safeco Ins. Co. of Illinois (2001), 91 Ohio St.3d 474, 478, 747 N.E.2d 206. In the context of an asset sale, terms of insurance coverage may be the subject of bargaining. For example, a seller may wish to preserve its insurance coverage limits entirely, a buyer may seek the insurer’s consent to have coverage assigned, or the parties may enter into indemnification agreements. The parties may creatively agree to control their own liability. The insurers here contracted to insure a particular company, LOF, against environmental damage as a result of the glass-manufacturing operations. The contract specified that the insurers must consent before an “interest” could be assigned. The parties’ agreements should stand as negotiated.
{¶ 100} Therefore, I concur to the extent that the lead opinion holds that a transfer of insurance benefits does not arise by operation of law when liabilities are imposed voluntarily by contract. I respectfully dissent as to the answer to certified question one and the need to answer question two.
Lundberg Stratton and O’Donnell, JJ., concur in the foregoing opinion.
Goodman Weiss Miller, L.L.P., Drew A. Carson, and Sarah H. Kostura, in support of petitioner for amicus curiae, United Policyholders.
Allen, Kuehnle & Stovall, L.L.P., Lisa L. Norris, and Thomas R. Allen; Wiley, Rein & Fielding, Laura A. Foggan, and Alicia C. Ritter, in support of respondents for amicus curiae, Complex Insurance Claims Litigation Association.

. A declaratory judgment action for asbestos-related coverage under the same policies is pending in the Common Pleas Court of Lucas County, Ohio, No. CI0200304077.

. Of course the insurers continue to owe the duties of defense and indemnification to the insured policyholder, now known as Aeroquip, which retains the capability of suing the insurers for amounts up to policy limits if it is refused a proper defense or if it is not indemnified after being found liable for property damage or personal injury as a result of LOF’s previous operations.