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Ohio Supreme Court Recognizes Insurance Coverage for Manufacturer’s Successor

December 20, 2006

WASHINGTON, DC, December 20, 2006 — The Ohio Supreme Court ruled today that the present-day owner of a manufacturing operation may obtain insurance coverage under policies issued to the former owner of that operation. In a 4-3 decision, the Court rejected the insurers’ arguments that they had no obligation to any entity other than the original owner.

The case, Pilkington North America, Inc. v. Travelers Insurance Co., was closely watched, in part because only one other state supreme court has directly addressed the issue of whether a corporate successor may look to its predecessor’s insurance policies. In that case, the California Supreme Court refused to recognize the right of a corporate successor to seek coverage under policies issued to its corporate predecessor. The Ohio Supreme Court refused to follow the California decision, holding that an insured with latent liabilities covered under an “occurrence” policy could transfer those liabilities and the coverage for any judgment or settlement without the need for pre-transfer consent from the insurer. The Court did not decide whether the right to an insurer-provided defense against a claim for a covered liability would also transfer without insurer consent.

The Court also ruled that the policyholder could not, under the circumstances of the case, rely on a non-contractual theory of successorship rights. The Court’s ruling on that point proved central to the court’s decision also handed down today in a companion case involving different parties and counsel, Glidden Co. v. Lumbermens Mutual Casualty Co.

The issue of coverage under a prior owner’s insurance policies has wide significance because of the volume of corporate transactions from at least the 1960s to date. (By one estimate, in the 1980s alone more than 22,000 merger and acquisition transactions were announced.) The Ohio ruling preserves the coverage rights that many Ohio businesses believed they were acquiring when they accepted historic latent liabilities as part of the acquisition of a product line, unincorporated division, or other group of assets, and the decision bolsters the argument in favor of coverage in other jurisdictions.

"Any manufacturer whose corporate history is the least bit complex should be interested in this ruling,” said Seth Tucker of Covington & Burling LLP. For a copy of the Ohio Supreme Court's opinion, please click here.

Seth Tucker, a partner of Covington & Burling LLP, argued the case on behalf of Pilkington North America; Mitchell Dolin and Ann-Kelley Kemper of Covington in Washington and Steven Smith of Connelly, Jackson & Collier LLP in Toledo also worked on the case.

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