Dissolved Company’s Liability Policies Give Claimants No Avenue Of Recourse

March 31, 2016 / Writing and Speaking

The 3rd District Appellate Court recently held that persons with claims against a corporation dissolved more than five years earlier could not recover against the corporation’s liability insurers.

The claimants in Adams v. Employers Insurance Company of Wausau, 2016 IL App (3d) 150418 (Feb. 18, 2016). were represented by Simmons, Hanly & Conroy LLC of Alton.

The defendant insurers consisted of Employers Insurance Company of Wausau, TIG Insurance Co. and Travelers Casualty and Surety Co. They were represented, respectively, by Singer & Mahoney; Carroll, McNulty & Kull LLC; and Dentons US LLP.

The claimants were numerous individuals who were former employees of Sprinkmann Sons Corporation of Illinois that were diagnosed with mesothelioma and lung cancer. They brought suit against the former Sprinkmann, its previous owners, Arthur and Rhonda Kremers, and its liability insurers in 2011.

The former Sprinkmann, however, had been dissolved in 2003, with certain of its assets having been sold to a new corporation, Sprinkmann Insulation Inc. New Sprinkmann did not acquire any liabilities or insurance policies of the former Sprinkmann.

The claimants’ complaint acknowledged that their causes of action did not accrue until after the five-year wind-up period for the former Sprinkmann, as provided for under the Business Corporation Act, 805 ILCS 5/12.80. Section 12.80 states that dissolution of a corporation does not impair any civil remedy against the company or its shareholders for claims existing prior to dissolution, if the lawsuit is commenced within five years after dissolution.

The insurers moved to dismiss on the ground that Section 12.80 barred the action against the former Sprinkmann, and that the claimants’ action thus constituted a direct action against the insurers, which is prohibited. The trial court agreed and granted the motion; the claimants brought this appeal.

Analysis

In an opinion by Justice Mary W. McDade, the 3rd District affirmed. She began her analysis by observing that Section 12.80 creates a statute of repose for actions against a dissolved corporation, such as the former Sprinkmann. As for the claimants’ argument that the former Sprinkmann’s insurance policies nonetheless transferred to new Sprinkmann by virtue of its purchase of assets, McDade said that was not possible because the purchase agreement provided neither for the acquisition of the former Sprinkmann’s liabilities or liability policies.

The claimants contended in the alternative that the policies passed to the Kremerses by operation of law. McDade responded that, even if they did, the claimants were statutorily prohibited from bringing an action against the Kremerses to reach those assets by virtue of Section 12.80.

Because the claims against the former Sprinkmann and the Kremerses were barred, McDade reasoned that the claimants’ lawsuit effectively constituted a direct action against the insurers. Such direct actions, however, are prohibited by Illinois public policy, at least if the issue of coverage is not effectively severed from any issue of the insured’s liability and assessment of damages.

McDade found, moreover, that the claims here did, in fact, commingle coverage, liability and damages, because to recover under the liability policies, the claimants necessarily would have to establish the former Sprinkmann’s negligence.

The claimants, nonetheless, appealed to the court’s equitable authority to create new law to craft a remedy for them. They contended that the legislature’s failure to create a remedy was not an impediment to the court’s ability to do so.

McDade declined. She observed that this was not a situation where the legislature had simply failed to fashion an equitable remedy. Rather, the legislature enacted a statute in the nature of a statute of repose that foreclosed a liability determination against the former Sprinkmann’s and its owners, at least in the absence of circumstances that did not here exist.

In a footnote, moreover, she noted a bill in the legislature that would have made a dissolved corporation’s liability policies available for the benefit of persons injured by a dissolved corporation. That bill, however, had been shelved indefinitely last year.

The court, therefore, affirmed the dismissal of the insurers.

Key Points

  • • Asset purchase agreements that do not provide for the acquisition of the seller’s liabilities or liability policies, do not have the effect of transferring such liabilities or policies to the purchaser.
  • • Illinois public policy prohibits direct actions against insurance companies unless the issue of coverage is effectively severed from any issue of the insured’s liability and the assessment of damages.
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