The Fourth Circuit recently asked the West Virginia Supreme Court of Appeals whether a state law stating that contract rights vest in the survivor of a merger nullified a non-assignment provision in an auto policy that was transferred to a successor corporation.  See State Auto Prop. and Cas. Ins Co., No. 08-1481, 2009 U.S. App. LEXIS 25053  (4th Cir. Nov. 16, 2009).

  In February 2000, Eastern Data Systems, Inc. (EDSI) purchased an auto liability policy from State Auto.  In October 2002, Engineering Profession Services (EPS) purchased 100% of EDSI's stock.  In January 2003, EDSI merged into one of EPS's companies, EPS Network Solutions, Inc.   In light of the merger, EDSI's vehicles were retitled to Network Solutions in February 2003.  The policy with State Auto, listing EDSI as a named insured, was renewed until its cancellation in May 2004.

   On May 26, 2003, a Network Solutions employee caused a multiple vehicle accident while driving a Ford van which had been owned by EDSI prior to the merger, but was now owned by Network Solutions.  The Ford van was listed on the schedule of vehicles in the policy. 

   At the time of the accident, EPS also had an auto policy with Federal Insurance Company which covered Network Solutions' vehicles.  Federal settled all of the claims arising from the accident for a total of $851,510.  Federal then sought contribution from State Auto for one-half of the total settlement amount.  State Auto disputed the contribution claims because its policy contained a non-assignment clause which provided, "Your rights and duties under this policy may not be transferred without our written consent . . . . " 

   Federal argued the State Auto policy transferred to Network Solutions by operation of law under a West Virginia statute which read, "When a merger takes effect . . . all property owned by and every contract right possessed by, each corporation . . .  that merges into the survivor is vested in the survivor . . . . " 

   State Auto filed a declaratory judgment action against EDSI and Network Solutions, and Federal intervened as a defendant.  On cross-motions for summary judgment, the district court held in favor of Federal, reasoning that EDSI's rights under the State Auto policy transferred to Network Solutions by operation of law despite the non-assignment clause.

   Finding no guidance in West Virginia's case law, the Fourth Circuit sought assistance from the West Virginia high court regarding the statute's impact on the non-assignment provision.  The certified question asked, "When two corporate entities have merged, does [the statute] operate on its face to void an otherwise applicable non-assignment clause in a business auto insurance policy issued pre-merger to the non-surviving corporation?" 

   We will keep a look out for West Virginia's answer to this question.