Robert gave his initial impressions of this new Hawaii Supreme Court (Del Monte Fresh Produce (Hawaii), Inc. v. Fireman’s Fund Ins. Co., et al.) case last week. I add some thoughts and a summary below. By way of disclaimer, my name appears in the decision as one of the attorneys representing Del Monte.
It is not every day that a Hawaii appellate court issues decisions on insurance law, so this was a major event for insurance practitioners. The decision is a victory for insurance companies and a blow to policy-holders, departing from the commonly held belief that Hawaii is one of the most policy-holder friendly jurisdictions in the country.
At first blush, the reasoning in the opinion seems logical and makes sense. Party A enters a contract with Party B; Party B assigns his rights to the contract to Party C, but never secures consent to the assignment from Party A. Why should Party A be bound by contract to Party C when Party A never agreed to be so bound?
On the other hand, Del Monte Corp., the named insured, sold all of its rights and liabilities to Del Monte Fresh, including the responsibility for remediating a Superfund site. Under the assignment of the insurance policies, Del Monte Fresh did not increase the risk to the insurance companies, but absorbed the duty to clean the site. Nevertheless, by merely changing the party responsible for the cleanup, the Del Monte opinion relieves the insurers from any coverage obligations. Therefore, although the opinion seems logical, the result seems harsh.
A summary follows:
Del Monte Corporation was insured under polices issued by Fireman’s Fund and others prior to its sale of its Hawaii operations in 1989. The policies contained no assignment clause requiring consent of the insurers to bind them to any assignment of the policies. Through the sale, Del Monte Corp. transferred its assets and liabilities to Del Monte Fresh Produce (Hawaii), Inc. Del Monte Fresh maintained that the transfer of all assets and liabilities assigned to it the right to claim and recover under Del Monte Corp.’s insurance policies in effect prior to the 1989 sale, notwithstanding the absence of an assignment provision in the policies.
In 1994, the Del Monte pineapple plantation at Kunia, Hawaii was designated a Superfund site by the EPA. An investigation revealed that a major spill of a soli fumigant had occurred in 1977, in addition to smaller spills over the years. Del Monte Fresh eventually entered an Administrative Consent Order with the EPA and agreed to undertake a remedial investigation and feasibility study. Del Monte Fresh tendered the defense of the EPA claim to all liability insurers of the plantation since the 1940’s, but coverage was denied.
Consequently, Del Monte Fresh sued its insurers in 1997. In 2001, the trial court granted Del Monte Fresh’s cross-motion for summary judgment, holding that where a successor corporation seeks coverage and the coverage does not increase the risk to the insurer, by operation of law coverage extends to the claimant. Therefore, the insurers had a duty to defend and to indemnify Del Monte Fresh.
The Hawaii Supreme Court reversed and entered summary judgment in favor of the insurers and against Del Monte Fresh. The Court found a decision by the California Court of Appeal persuasive. In General Accident Ins. Co. of America v. Superior Court, 64 Cal. Rptr. 2d 781 (Cal. Ct. App. 1997), the court held that a transfer of a policy to a successor corporation by operation of law was a violation of the basic principles of contract and was also bad public policy. Similarly, under Hawaii law, every insurance policy is subject to the general rules of contract interpretation. Therefore, the trial court erred in ruling that an assignment by operation of law is consistent with Hawaii’s rules governing construction of insurance policies.
The policies had a no assignment clause that required the consent of the insurer to bind it to any assignment made by the insured. Del Monte Corp. was the only named insured covered by the policies. Del Monte Corp. had never obtained any consent from the insurers prior the 1989 assignment. Therefore, Del Monte Fresh was not an insured under the policies.
