PUBLISHED
OPINION
COURT OF
APPEALS
DECISION
DATED AND FILED
January 19,
2000
Cornelia G. Clark
Acting Clerk, Court of Appeals
of
Wisconsin
NOTICE
This opinion is subject to further editing. If published, the official version will
appear in the bound volume of the Official Reports.
A party may file with
the Supreme Court a petition to review an adverse decision by the Court of Appeals. See
Wis. Stat. § 808.10 and Rule 809.62.
No. 98-3628
STATE OF
WISCONSIN IN COURT OF APPEALS
DISTRICT
II
Red Arrow Products
Company, Inc.,
Plaintiff-Appellant,
v.
Employers Insurance of
Wausau,
A Mutual Company,
Defendant-Respondent.
APPEAL from an order of the circuit court for Manitowoc County: FRED H.
HAZLEWOOD, Judge. Affirmed.
Before Brown, P.J., Nettesheim and Snyder, JJ.
¶1. SNYDER, J. Red Arrow Products Company, Inc. (New Red Arrow)
appeals from an order dismissing its action requesting a declaration of the duty of Employers
Insurance of Wausau (Wausau) to defend and/or indemnify New Red Arrow under liability
policies issued by Wausau to New Red Arrow's predecessor. New Red Arrow contends that,
by operation of law, it was transferred the benefits of Wausau's policies which were in effect
prior to New Red Arrow's existence. We conclude that because New Red Arrow was not a
named insured and was never assigned the policies, it does not have coverage under the
policies as a matter of contract law. We therefore affirm the trial court's order granting
Wausau's motion for summary judgment.
BACKGROUND
Old and New Red Arrow
¶2. The history of New Red Arrow and its predecessors is somewhat confusing,
but the essential facts are as follows. Prior to July 1970, Red Arrow Products Corporation,
a Wisconsin corporation, was engaged in the food flavoring business at the same location in
Manitowoc presently occupied by New Red Arrow. Red Arrow Products Corporation
changed its corporate form to a general partnership in July 1970 and continued operations as
Red Arrow Products Company, a general partnership. In September 1981, Red Arrow
Products Company, a general partnership, transferred its assets to Red Arrow Products
Company, a Delaware corporation, in return for all of the issued stock of the Delaware
corporation; the Delaware corporation was formed to continue the manufacturing and sales
operations of Red Arrow Products Company, a general partnership. At the same time, Red
Arrow Products Company, a general partnership, changed its name to Red Arrow
Partnership and continued to operate as an investment company.
¶3. In May 1984, Red Arrow Products Company, a Delaware corporation,
transferred and assigned certain of its assets and liabilities to New Red Arrow. After the
sale, Red Arrow Products Company, a Delaware corporation, changed its name to
TO-WE-TI Company, a general partnership, which was then dissolved and its assets
distributed to Red Arrow Partnership on December 31, 1984. For our purposes, we will
refer to the preceding entities, except for New Red Arrow, as Old Red Arrow (i.e., Red
Arrow Products Corporation, a Wisconsin corporation; Red Arrow Products Company, a
general partnership; Red Arrow Products Company, a Delaware corporation; TO-WE-TI
Company, a general partnership; Red Arrow Partnership).
The Wausau Policies
¶4. Wausau issued primary and umbrella comprehensive general liability
insurance policies (the Wausau policies) to Old Red Arrow. Under the Wausau policies, Old
Red Arrow was an insured for policy periods commencing on April 1, 1969, and terminating
on July 1, 1977. The declarations page of each of the policies identifies the named insured
as "Red Arrow Products Company," which is further identified as a
partnership.1
¶5. The Wausau policies generally provide that Wausau "will pay on
behalf of the insured all sums which the insured shall become legally obligated to pay as
damages because of ... bodily injury or ... property damage." Wausau also has the
right and duty to defend any suit against the insured seeking damages on account of such
bodily injury or property damage.
¶6. The Wausau policies define an "insured" as "any person or
organization qualifying as an insured in the `Persons Insured' provision of the applicable
insurance coverage." The "Persons Insured" section sets forth who is an
insured under the policies:
Each of the following is an insured under this insurance
...
....
(b) if the named insured is designated in the declarations as a partnership or joint
venture, the partnership or joint venture so designated and any partner or member thereof but
only with respect to this liability as such.
The Wausau policies also contain a provision addressing
the assignment of a policy. "Assignment of interest under this policy shall not bind
[Wausau] until its consent is endorsed hereon ...."
¶7. The assets transferred from Old Red Arrow to New Red Arrow at the time
of the May 1984 purchase and sale agreement (sale agreement) were identified as the
"Purchased Assets." These assets included the accounts, contracts, customer
lists, inventory, investments and insurance policies, among other things. The term
"Insurance Policies" was set forth in the sale agreement as "all of the
insurance policies owned by [Old Red Arrow] and which are listed on Exhibit 9."
Exhibit 9 apparently identified a current comprehensive general liability policy held by Old
Red Arrow, but it did not list the Wausau policies. New Red Arrow does not dispute that
the Wausau policies were not mentioned in Exhibit 9 of the sale agreement and that the
Wausau policies were not included in the sale. The sale agreement stated that the liabilities
of Old Red Arrow to be assumed by New Red Arrow under the terms of the sale agreement
included "liabilities and obligations of [Old Red Arrow] relating to accounts payable,
payroll, bonus, commissions, real estate taxes, personal property taxes, payroll taxes and
volume discounts."
The Lemberger Sites
¶8. From 1972 to 1976, Old Red Arrow disposed of wood tar waste at the
Lemberger Landfill and Lemberger Landfill Transport and Recycling Sites (the Lemberger
sites). In 1984 and 1985, the Lemberger sites were added to the United States
Environmental Protection Agency's (EPA) National Priorities List, created pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), 42 U.S.C. § 9605(a)(8)(B) (West 1995). In November 1985, the EPA
notified New Red Arrow that it considered Red Arrow, without designating New or Old, to
be a potentially responsible party with respect to the remediation of the Lemberger
sites.
¶9. Wausau later agreed to advance funds to Old Red Arrow to pay the costs of
the investigation to verify the nontoxic or nonhazardous contribution of the wood tar wastes
at the Lemberger sites.
¶10. In October 1992, the EPA entered into a consent decree with a potentially
responsible parties group called the Lemberger Site Remediation Group (LSRG). The LSRG
did not initially include New or Old Red Arrow. New Red Arrow subsequently began
negotiations with the LSRG to enter into a settlement agreement. In November 1993, New
Red Arrow notified Wausau that it believed Wausau owed it a defense and had a duty to
indemnify it under the Wausau policies. In February 1994, New Red Arrow entered into a
participation agreement with the LSRG. New Red Arrow then filed suit against Old Red
Arrow seeking recovery of costs pertaining to the environmental cleanup of the Lemberger
sites. Wausau initially provided a defense for Old Red Arrow in that action.
¶11. In June 1995, the EPA filed a federal action against New Red Arrow to
recover costs incurred with respect to the Lemberger sites. New Red Arrow tendered the
defense of the action to Wausau, but Wausau denied its request. New Red Arrow later
settled with the EPA, agreeing to pay $712,500 for costs incurred with respect to the
Lemberger sites.
¶12. In May 1997, New Red Arrow commenced this action seeking a
determination of Wausau's duty to defend and indemnify it under the Wausau policies for
claims arising out of its alleged liability concerning disposal of wastes at the Lemberger sites.
Both parties filed motions for summary judgment. On July 16, 1998, the trial court rendered
its decision, granting Wausau's motion and dismissing New Red Arrow's declaratory
judgment action.
DISCUSSION
¶13. When reviewing a grant of summary judgment, this court applies the
standards of Wis. Stat. § 802.08 (1997-98)2 in the same way the trial court applied them.
See Amcast Indus. Corp. v. Affiliated FM Ins. Co., 221 Wis.2d 145,
153, 584 N.W.2d 218 (Ct. App.), review denied, 221 Wis.2d 654, 588 N.W.2d
631 (Wis. Oct.14, 1998) (No. 96-2968). For summary judgment to be granted, there must
be no genuine issue of material fact and the movant must be entitled to judgment as a matter
of law. See § 802.08(2). The court must examine the pleadings to
determine whether a claim has been stated and whether there are any material issues in
dispute. See Amcast, 221 Wis.2d at 154. An appellate court reviews an
interpretation of an insurance policy as a matter of law, paying no deference to the lower
court. See id. at 153-54.
¶14. Wausau and New Red Arrow have stipulated to the material facts; we
therefore move on to address the contested legal issues. Initially, the parties dispute the
question presented in this case. New Red Arrow states that two issues are at stake: whether
New Red Arrow was entitled to a defense by Wausau and whether the duty to indemnify
under the Wausau policies issued to Old Red Arrow is owed to New Red Arrow. New Red
Arrow's appeal focuses on whether it is at least "fairly debatable" that the
benefits under the Wausau policies were transferred to it by operation of law. It argues that
Wausau had a duty to defend New Red Arrow which it failed to meet without first seeking a
determination regarding coverage.
¶15. Wausau contends that the issue is a more narrow one which is found in the
trial court's scheduling order and asks whether New Red Arrow can claim coverage under
policies issued by Wausau to New Red Arrow's predecessor. In February 1998, the parties
agreed for purposes of summary judgment to stipulate to certain facts concerning the
"threshold issue," which was similarly defined as "whether [New Red
Arrow] has any right to claim benefits as though it is an insured under certain liability
insurance policies issued by [Wausau] to [Old Red Arrow]." Furthermore, at the
summary judgment motion hearing, the court stated that the "issue at this particular
time is a very narrow one, ... the issue ... is who is insured under these policies that were
issued back in the 70's to [New Red Arrow's] predecessor." The court then
determined that New Red Arrow was not an insured under the Wausau policies because,
among other things, there was no assignment of the policies from Old Red Arrow to New
Red Arrow. We are convinced that the question in this case is the one the parties have been
addressing from the start and which has not changed since the parties' arguments for
summary judgment: whether New Red Arrow is an insured under the policies.
¶16. Next, New Red Arrow urges us to extend the "fairly debatable"
standard, which Wisconsin law presently applies to determine the issue of coverage and the
duty to defend, see Elliott v. Donahue, 169 Wis.2d 310, 317, 485
N.W.2d 403 (1992), to answer the question of who is an insured. New Red Arrow contends
that because the question of who is entitled to the benefits of an insurance policy is a
coverage issue just as the question of whether a particular claim is covered is a coverage
issue, the fairly debatable standard should apply to both. New Red Arrow is unable to point
to any case in which the issue of whether a party is an insured is addressed by the
"fairly debatable" standard but, nonetheless, asks that we utilize the standard in
this case. We decline New Red Arrow's request.
¶17. The principal benefits provided under an insurance policy are
indemnification and defense. See Elliott, 169 Wis.2d at 320. An
insurer's duty to defend is broader than its duty to indemnify because the duty to defend
exists when it is merely arguable that the policy in question provides coverage. See
Radke v. Fireman's Fund Ins. Co., 217 Wis.2d 39, 44, 577 N.W.2d 366 (Ct.
App.), review denied, 219 Wis.2d 923, 584 N.W.2d 123 (Wis. May18, 1998)
(No. 97-0044). An insurer has a duty to defend if the existence of coverage is "fairly
debatable." See id. A claim is fairly debatable where a genuine
dispute over the status of the law or the facts exists at the time of the tender of defense.
See Madsen v. Threshermen's Mutual Ins. Co., 149 Wis.2d 594, 614,
439 N.W.2d 607 (Ct. App. 1989). Although the "fairly debatable" standard is
measured from the insurer's point of view, the policy language is still tested not by what the
insurer intended the words to mean, but by what a reasonable person in the position of the
insured would have understood the words to mean. See United States Fire Ins. Co. v.
Good Humor Corp., 173 Wis.2d 804, 820, 496 N.W.2d 730 (Ct. App.
1993).
¶18. The "fairly debatable" standard defines the scope of an insurer's
duty to defend by addressing whether there is arguable coverage; the standard presumes that
the identity of the insured has been established. The Elliott court noted
that "[t]he insurer that denies coverage and forces the insured to retain
counsel and expend additional money to establish coverage for a claim that falls within the
ambit of the insurance policy deprives the insured the benefit that was bargained
for and paid for with the periodic premium payments." Elliott, 169
Wis.2d at 322 (emphasis added). When faced with a claim for which coverage is fairly
debatable, an insurer is instructed to obtain a judicial determination of its coverage
obligations, if any. See Fire Ins. Exch. v. Basten, 202
Wis.2d 74, 89-90, 549 N.W.2d 690 (1996). "An insurer may need to provide a
defense to its insured when the separate trial on coverage does not precede the trial on
liability and damages." Mowry v. Badger State Mut. Cas. Co., 129
Wis.2d 496, 528, 385 N.W.2d 171 (1986). Placing such requirements on an insurer helps
guarantee that the insured receives the protection which it believed it was purchasing with its
premium payments. The "fairly debatable" standard is instrumental to the
insured's protection.
¶19. Here, New Red Arrow did not come into existence until 1984 and therefore
was not a named insured on the Wausau policies. New Red Arrow cannot obtain the benefit
of the "fairly debatable" standard in arguing that Wausau had a duty to defend
because it did not bargain for the Wausau policies and did not pay the premiums. We
therefore refuse to apply the "fairly debatable" standard in this case.
¶20. Besides not being a named insured, New Red Arrow was never assigned
the Wausau policies under its sale agreement with Old Red Arrow. The sale agreement gave
New Red Arrow the "Purchased Assets," but these assets did not include the
Wausau policies. New Red Arrow does not dispute this fact.
¶21. In addition, the Wausau policies' assignment provision precludes
assignment without the insurer's consent. "Assignment of interest under this policy
shall not bind [Wausau] until its consent is endorsed hereon ...." This language makes
clear that without Wausau's permission, no assignee or transferee has any rights to any
benefits under the Wausau policies. See Loewenhagen v. Integrity Mut. Ins.
Co., 164 Wis.2d 82, 92, 473 N.W.2d 574 (Ct. App. 1991) ("no
assignment" provision clearly precluded transfer of automobile insurance policy from
seller of automobile to buyer where no consent was obtained). New Red Arrow does not
dispute the policy language.
¶22. Instead, New Red Arrow contends that the benefits of the Wausau policies
were transferred to it by operation of law. In support, New Red Arrow relies upon
Northern Insurance Co. v. Allied Mutual Insurance Co., 955 F.2d 1353
(9th Cir. 1992), cert. denied, 505 U.S. 1221 (1992), and subsequent cases,
which concluded that the benefits of insurance policies can transfer from one business entity
to a succeeding entity despite there being no assignment of the policies.
¶23. In Northern Insurance, the underlying action was a
products liability suit brought by the Howards against the makers of California Cooler after
their child was born with fetal alcohol syndrome. The Howards later voluntarily dismissed
their suit. Before the Howards filed suit and after their child was born, Brown-Forman
bought California Cooler through an asset purchase agreement. The agreement excluded
from the sale the assignment of any contract or insurance policy that required consent to
assign. Allied Mutual Insurance had issued California Cooler a products liability policy
which was in effect during Mrs. Howard's pregnancy but which did not appear on the list of
insurance policies transferred to Brown-Forman.
¶24. The Ninth Circuit Court of Appeals first determined that the parties'
purchase agreement did not assign Allied Mutual's policy to Brown-Forman because the
agreement specifically excluded any contract that required consent to be assigned and Allied
Mutual's policy required California Cooler to obtain its consent before assigning the policy.
See id. at 1357. The court, however, concluded that the benefits of
Allied Mutual's policy were transferred by operation of law under California and
Washington's "rule of product-line successor liability." Id.
In the California case of Ray v. Alad Corp., 560 P.2d 3 (Cal. 1977), the
court created the product-line successor liability rule as an exception to the rule against
successor liability.3 The
product-line successor liability rule provides that a purchaser of a firm's assets assumes the
obligation for product liability claims arising from the selling firm's presale activities,
regardless of any clause to the contrary in the asset purchase agreement. See
id. at 11. The Northern Insurance court applied this
product-line successor liability rule to the insurance policy at issue.
The district court found that the right to indemnity arising
from California Cooler's 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 Allied's policy in the agreement, the right to indemnity under the
policy transferred to Brown-Forman by operation of law.
Northern Insurance, 955 F.2d at
1357. The court explained that the rationale for honoring "no assignment" or
consent clauses no longer exists when liability arises from presale activity. See
id. at 1358.
¶25. Next, New Red Arrow finds support for extending the product-line
successor liability rule to cases involving CERCLA liability. New Red Arrow cites
Total Waste Management Corp. v. Commercial Union Insurance Co., 857
F. Supp. 140 (D.N.H. 1994), and B.S.B. Diversified Co. v. American Motorists
Insurance Co., 947 F. Supp. 1476 (W.D. Wash. 1996).
¶26. In the first case, Total Waste Management (TWM) brought a declaratory
action against Maine Bonding & Casualty Co. to determine whether it had an obligation
to defend and indemnify TWM in an action brought by Kleen Laundry and Dry Cleaning
Services, Inc. for costs incurred in responding to an environmental hazard. See Total
Waste Management, 857 F. Supp. at 142. Kleen filed its underlying action
against several oil recycling companies, including George West, claiming that TWM was a
successor to George West. Maine Bonding sought summary judgment against TWM,
arguing that TWM was not a named insured on the policy issued to George West, nor an
insured of Maine Bonding as a result of TWM's purchase of assets from George West, nor
an assignee of the George West policy. In denying Maine Bonding's motion, the Federal
District Court of New Hampshire held that
[w]hile agreeing that Northern Ins. Co. is a
product-line successor liability case, the court finds the Ninth Circuit's reasoning is
persuasive authority in deciding whether a potential corporate successor is entitled to
coverage under its predecessor's insurance policy for a risk occurring before the transfer of
assets.
Id. at 152.
¶27. B.S.B. Diversified also involved liability for
environmental cleanup costs. B.S.B. obtained all of the assets and assumed all of the
liabilities of the previous owners of contaminated property. The term of insurance coverage
at issue was for a period prior to the sale of B.S.B. The court stated that although the
liability was assigned by contract to B.S.B., as successor, the principle that insurance follows
liability was equally valid in the present case as in a products liability case like
Northern Insurance. See B.S.B. Diversified, 947 F.
Supp. at 1481. The court concluded that the holding in Northern
Insurance should apply in CERCLA cases as in products 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." Id. at 1481-82 (quoting
Quemetco v. Pacific Auto. Ins. Co., 29 Cal. Rptr. 2d 627, 634-35 (Cal.
Ct. App. 1994) (Johnson, J., dissenting)).
¶28. New Red Arrow's reliance on these cases is unpersuasive. First, as
Northern Insurance was a product-line successor liability case, we note
that Wisconsin has explicitly rejected this exception to the rule against successor liability.
See Fish v. Amsted Indus., Inc., 126 Wis.2d 293, 305, 376 N.W.2d 820
(1985) (declining to adopt California's product-line successor liability rule as set forth in
Ray, 560 P.2d at 3).
¶29. Second, Northern Insurance's holding that insurance
benefits follow liability has been rejected by several cases. In General Accident
Insurance Co. v. Superior Court, 64 Cal. Rptr.2d 781, 782 (Cal. Ct. App.
1997), Western MacArthur Co. sought declaratory relief against three insurance companies
to determine their duties to defend and indemnify it for personal injury actions arising from
its predecessor's distribution of asbestos. Pursuant to the product-line successor liability
rule, Western MacArthur was found liable for its predecessor's defective products. Western
MacArthur subsequently claimed a right to its predecessor's insurance coverage by operation
of law despite not being a named insured.
¶30. The California Court of Appeals concluded that a finding of successor
liability in tort did "not create from whole cloth an insurance relationship between
strangers, and insurance coverage under these circumstances does not transfer by operation
of law." Id. The court rejected Northern
Insurance's conclusion that insurance coverage transfers by operation of law by
a finding of successor liability for product liability torts.
An insured-insurer relationship is a matter of contract.
Successor liability is a matter of tort duty and liability. It is one thing to deem the successor
corporation liable for the predecessor's torts; it is quite another to deem the successor
corporation a party to insurance contracts it never signed, and for which it never paid a
premium, and to deem the insurer to be in a contractual relationship with a stranger.
General Accident, 64 Cal. Rptr.2d at
785. The court concluded that the product-line successor liability rule is a narrow exception
to the rule against successor liability, that the rule should not be extended to insurance
coverage cases, that coverage is a question of contract interpretation, that the duty to defend
is based on the subject insurance contract, and that the person injured in a successor liability
case is not in a contractual relationship with the manufacturer and "generally cannot
protect himself or herself from the eventuality of injury from a product manufactured by a
predecessor company." Id. at 786.
¶31. In Quemetco, 29 Cal. Rptr.2d at 627, the facts closely
resemble those in the instant case. In the 1950s and 1960s, Western Lead Products Co.
shipped hazardous waste to a disposal site. Western Lead was insured during this time by
various insurance companies (respondents). In 1970, Western Lead changed its name to
Quemetco, Inc. (Old Quemetco). Old Quemetco then sold its assets to a corporation and its
subsidiary; the subsidiary changed its name to Quemetco, Inc. (New Quemetco) and Old
Quemetco was dissolved. See id. at 628. More than a decade later,
lawsuits were filed against New Quemetco arising out of alleged environmental
contamination. New Quemetco sought insurance coverage under insurance policies that had
been issued to Old Quemetco.
¶32. The California Court of Appeals concluded that Old Quemetco's policies
did not transfer to New Quemetco as a matter of law. The court declined to extend the
product-line successor liability rule to the case, noting that courts "look to the contract
itself to resolve the issue of coverage." Id. at 630. The court also
determined that Old Quemetco's policies did not transfer to New Quemetco at the time of the
assets' sale because the respondents never consented to the policy transfer pursuant to their
consent provisions. See id. at 632. "To hold that the policies were
assignable without respondents' consent would leave Old Quemetco without any insurance to
cover any potential liability assessed against it." Id. In addition,
the court asserted that the rationale for the consent clause bolstered the respondents'
case.
The purpose of consent provisions is "to prevent an
increase of risk and hazard of loss by a change of ownership without the knowledge of the
insurer." In the instant case, both Old Quemetco and New Quemetco assert coverage
under respondents' policies. Thus, unless the consent clauses are enforced, respondents
would be faced with the increased risk of having to defend two corporations. Therefore, the
consent clauses are valid and enforceable.
Id. (citation omitted).
¶33. We find the General Accident and
Quemetco cases persuasive. We disagree with the Northern
Insurance court's extension of the product-line successor liability rule, a rule
carved out under tort law, to a contract case. The successor liability rule was intended to
protect an individual who, not being in a contractual relationship with a manufacturer, cannot
otherwise protect himself or herself from an injury arising from a product manufactured by a
company that no longer exists. See General Accident, 64 Cal. Rptr.2d at
786. The Ray court explained that the justification for imposing strict tort
liability is "the protection of otherwise defenseless victims of manufacturing defects and
the spreading throughout society of the cost of compensating them."
Ray, 560 P.2d at 8 (quoted source omitted). Similarly, the basis for
placing strict liability upon a successor to a manufacturer rests upon:
(1) the virtual destruction of the plaintiff's remedies against
the original manufacturer caused by the successor's acquisition of the business, (2) the
successor's ability to assume the original manufacturer's risk-spreading rule, and (3) the
fairness of requiring the successor to assume a responsibility for defective products that was
a burden necessarily attached to the original manufacturer's good will being enjoyed by the
successor in the continued operation of the business.
Id. at 9.
¶34. The policies driving the product-line successor liability rule, however, are
clearly not at play here. First, the EPA sought recovery from New Red Arrow and Old Red
Arrow for CERLCA response costs in connection with the Lemberger sites. Regardless of
whether New Red Arrow obtains coverage from Wausau, the EPA was not prevented from
pursuing its action against New Red Arrow despite the fact that Old Red Arrow was
succeeded by New Red Arrow. Second, the need to spread the costs associated with
environmental cleanup has not risen to the same level of public concern as the need to
protect otherwise defenseless victims of manufacturing defects. New Red Arrow does not
contend that environmental hazards will go unaddressed without the transfer of insurance
policies to succeeding business entities. Accordingly, the policy reasons that bolster rules of
strict liability and product-line successor liability do not support their application in the
present case.
¶35. As our supreme court noted in City of Edgerton v. General Casualty
Co., 184 Wis.2d 750, 764, 517 N.W.2d 463 (1994), the question is not,
"Who will pay the costs of environmental cleanup?" Rather, the issue here is
whether New Red Arrow is an insured under the Wausau policies as a matter of contract
law. We conclude that New Red Arrow is not. Because New Red Arrow never paid
premiums on the policies and never bargained for the policies, there was no privity of
contract between Wausau and New Red Arrow. In addition, the policies were never assigned
to New Red Arrow. New Red Arrow, therefore, does not have a valid claim for coverage
and Wausau did not have a duty to defend.
By the Court.-Order affirmed.
Recommended for publication in the official reports.
1 The only exceptions are the first two primary Wausau policies, in effect for annual policy
periods from April 1, 1969, to April 1, 1971, which list "Wisconsin Malting
Corp." as the named insured and include "Red Arrow Products Corp." as
an "additional named insured" by way of endorsement.
2 All references to the Wisconsin Statutes are to the 1997-98 version.
3 As a general rule, a corporation purchasing the assets of another corporation will not be
liable for obligations of the selling corporation. There are four well-recognized exceptions to
the rule against successor liability: (1) when the purchasing corporation agrees to assume the
obligations, (2) when the transaction amounts to a merger of the two corporations, (3) when
the purchasing corporation is merely a continuation of the selling corporation, and (4) when
the transaction is fraudulently contracted to escape such liability. See Sedbrook v.
Zimmerman Design Group, Ltd., 190 Wis.2d 14, 20, 526 N.W.2d 758 (Ct.
App. 1994).
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