Corporate policyholders should carefully consider insurance coverage implications when structuring mergers, acquisitions, or other transactions that may impact available insurance assets. A New Jersey federal court recently granted summary judgment for a surviving bank asserting coverage rights under a D&O policy issued to an entity that dissolved in a statutory merger, based in part on the wording of the parties’ merger agreement structuring the transaction in accordance with the New Jersey Business Corporation Act (“NJBCA”).
In so holding, the court refused to permit the insurer to deny coverage for post-merger defense costs incurred in connection with a pre-merger shareholder class action lawsuit, rejecting the carrier’s argument that the insurer’s duty to defend the original policyholder’s officers and directors extinguished when the policyholder dissolved and merged into the surviving entity. The court stated that “[u]nder the NJBCA, the surviving corporation of a merger in essence steps into the shoes of the merged entity for the purposes of the merged entity’s rights and liabilities,” including with respect to the merged entity’s insurance policies. Accordingly, the court held that “an insurance contract must contain specific exclusionary language to prevent a transfer of rights to the surviving entity under the NJBCA.” No such exclusion existed in the policy, so the transfer of assets in the merger preserved the surviving entity’s insurance rights. The court’s unpublished opinion, in BCB Bancorp, Inc. v. Progressive Casualty Insurance, No. 13‑1261 (D. N.J. Sept. 18, 2017), can be found here.
The insurance rights of a surviving entity are inherently fact-specific and largely depend on the facts of the underlying claim, the policy language, and the structure of the underlying transaction under applicable state law. Retaining experienced coverage counsel early in the deal process can help maximize insurance assets and mitigate risk of uncovered claims following the transaction.