Business owners should carefully consider insurance implications in structuring mergers, acquisitions or other transactions that may affect available insurance assets. A federal court in New Jersey recently granted a summary judgment for a surviving bank claiming coverage rights under a R&D policy issued to a company that was dissolved in a statutory merger, partly based on the parties' merger agreement that formulates the transaction in accordance with New Jersey Business Corporation Act ("NJBCA").
In that case, the court refused to allow the insurer to deny coverage of the merger costs costs of mergers arising from a shareholder class review procedure arguing that the insurer's obligation to defend the original policyholder's officials and board members was extinguished when the policyholder was dissolved and merged the surviving unit. The Court stated that "[u] NJBCA, the surviving company of a merger, essentially leads to the merged entity's rights in the merged entity's rights and liabilities", with respect to the merged entity's policies. Accordingly, the Court stated that "an insurance contract must contain a specific exclusive language to prevent the transfer of rights to the surviving entity under the NJBCA." There was no such exclusion in the policy, so the transfer of assets in the merger retained the survivor's unit's insurance rights. The Court's Unpublished Opinion, in BCB Bancorp, Inc. v Progressive Casualty Insurance No. 1
The insurance rights of a surviving entity are in fact, in fact, specific and depend largely on the facts of the underlying claim, policy language and structure of the underlying transaction according to applicable state law. Retaining experienced coverage advice early in the business process can help maximize insurance assets and mitigate the risk of undeclared claims after the transaction.