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  • August 19, 2022

    Post-loss Assignment of Insurance Rights Valid Despite Policy Clause

    An anti-assignment clause did not prevent the assignment of insurance rights from the company that purchased an insurance policy to a successor company, the Wisconsin Court of Appeals has ruled.

    Jeff M. Brown

    Blue Three-Ring Binders Full of Documents Stacked Atop A Desk While A Woman Writes In The Background

    Aug. 19, 2022 – An anti-assignment clause did not prevent the assignment of insurance rights from the company that purchased an insurance policy to a successor company, the Wisconsin Court of Appeals has ruled.​

    In Pepsi-Cola Metropolitan Bottling Company, Inc. v. Employers Insurance Company of Wausau, 2021AP635 (July 8, 2022), the Court of Appeals District II held (2-1) that anti-assignment provisions in the relevant insurance policies were void as against public policy.

    Judge Lori Kornblum wrote the majority opinion, joined by Judge Lisa Neubauer. Judge Shelley Grogan dissented.

    Anti-Assignment Clauses

    In 1963, Employers Insurance Company of Wausau (Wausau) issued primary and umbrella liability insurance policies to Waukesha Foundry Company (Old Waukesha). The policies were in effect until 1968.

    Jeff M. Brown Jeff M. Brown is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6126.

    The policies obligate Wausau to pay damages because of bodily injury or property damage caused by an “occurrence,” with occurrence defined as an accident or exposure to conditions that results in bodily injury or property damage that wasn’t expected or intended by the insured.

    The policies obligate Wausau to defend any suit seeking damages against the insured because of bodily injury or property damage. Each of the policies includes an anti-assignment clause, which specifies that assignments of interest under the policy do not bind the company without its consent.

    String of Successors in Interest

    Old Waukesha assigned and transferred all of its assets and liabilities to Illinois Central Industries in 1968, via a wholly-owned subsidiary named Waukesha Foundry Company, Inc. (New Waukesha).

    Wausau issued new policies to New Waukesha in 1968; the policies ran to 1971. The policies contained the same relevant provisions as the policies that were in effect from 1963 to 1968.

    New Waukesha merged with Abex Corporation (Abex) in 1974, and Abex took over the assets and liabilities of New Waukesha as a matter of law, including rights in the New Waukesha insurance policies as a successor-in-interest.

    Abex assigned all of its assets and rights to PA Holdings Corporation in 1990. The assignment and assumption agreement executed by the two entities specified that the assignment did not include assets that were incapable of being transferred without the consent of a third party.

    PA Holdings Corporation changed its name to Pneumo Abex Corporation in 1990. In 2004, Pneumo Abex Corporation merged with Pneumo Abex, LLC (Pneumo Abex).

    Enter an Indemnitor

    In 2019, Pneumo Abex executed an agreement with Pepsi-Cola Metropolitan Bottling Company, Inc. (Pepsi-Cola).

    Under the agreement, Pepsi-Cola became the “net-of-insurance” indemnitor of Pneumo-Abex for a spate of asbestos-related lawsuits that involved New and Old Waukesha, and Pneumo-Abex assigned its rights and liabilities under the Wausau policies to Pepsi.

    In 2017, Huff filed a lawsuit against Pneumo-Abex and other parties in a Missouri state court. Huff claimed: 1) that he’d been exposed to asbestos during the period the Wausau policies were in effect; and 2) that the defendants had manufactured, designed, and distributed the asbestos that caused his injuries.

    Pepsi-Cola tendered defense to Wausau and asserted that Pneumo-Abex was entitled to coverage under the policies issued to Old Waukesha and New Waukesha.

    Wausau denied coverage and claimed that Huff had sued for the historical liabilities of Abex, rather than either Old Waukesha or New Waukesha.

    Summary Judgment Appealed

    Pepsi-Cola paid the defense and settlement costs for Huff’s lawsuit and some of other asbestos lawsuits. After receiving from Pneumo-Abex an assignment of the right to pursue and keep insurance proceeds, Pepsi-Cola filed a lawsuit in Waukesha Circuit Court to determine whether Wausau had a duty to defend the asbestos lawsuits and indemnify Pepsi-Cola.

    Both parties moved for summary judgment. The circuit court granted Wausau’s motion, based on the court of appeals decision in Red Arrow Products Co., Inc. v. Employer’s Insurance of Wausau, 2000 WI App 36, 233 Wis. 2d 114, 607 N.W.2d. 294. 

    Pepsi-Cola appealed.

    Assignment Didn’t Require Consent

    Wausau argued that the anti-assignment provision in the 1963 and 1968 policies precluded it from being obligated to defend the asbestos lawsuits, because it hadn’t consented to the assignment of those policies to the respective successor companies.

    In her opinion for the majority, Judge Kornblum explained that long-standing principles of Wisconsin law required a conclusion that Wausau’s consent wasn’t required for an assignment of insurance recovery rights because the assignment came after Huff had suffered his alleged loss.

    “The purpose of a non-assignment clause is to protect the insurer from increased liability,” Kornblum wrote. “After the loss has occurred, assignment of the right to recover under the policy does not increase the insurer’s risk.”

    Red Arrow wasn’t on point, Judge Kornblum explained, because the parties in that case agreed that there had been no transfer of the recovery rights under the insurance policies.

    “Thus, the court did not need to decide whether there was an assignment of rights to recover under the policies—the parties stipulated to the fact that there was not,” Kornblum wrote. “It follows that whether the terms of the policies precluded an assignment was not at issue; the provision was irrelevant.”

    Because of that, Kornblum wrote, the statement in Red Arrow about the hypothetical effect of an anti-assignment provision “had no bearing on the issue actually litigated and certainly did not (and could not) overrule a century of Wisconsin Supreme Court precedent.”

    Instead, Judge Kornblum explained, the statement was dicta.

    Dissent: Red Arrow Controls

    In her dissent, Judge Grogan argued that the majority improperly disregarded Red Arrow.

    Red Arrow was binding and dispositive, Grogan argued, and the three cases that the majority relied upon to disregard that decision did not involve an insurer’s duty to defend, were based on non-verbatim out-of-state statutes, or were non-binding secondary sources.

    Additionally, Judge Grogan argued, the relevant statement in Red Arrow was not dicta.

    “[The statement] was germane and essential to our decision because before addressing the ‘by operation of law’ question, it was necessary to first determine that there had been no assignment,” Grogan wrote.

    Moreover, Judge Grogan argued, Red Arrow was the only Wisconsin case that addressed the duty-to-defend issue in the context of a third-party claim. The three cases relied upon the majority each involved first-party claims, she pointed out.  

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    WisBar Court Review, published by the State Bar of Wisconsin, includes summaries and analysis of decisions from the Wisconsin Supreme Court, the Wisconsin Court of Appeals, and the U.S. Court of Appeals for the Seventh Circuit, as well as other court developments. To contribute to this blog, contact Joe Forward.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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