To Infinity And Beyond - Long Dissolved Corporations Remain Subject To Claims According To The Delaware Supreme Court
In a November 26, 2013 decision involving the long-dissolved Krafft-Murphy Company, the Delaware Supreme Court held as a matter of first impression that: (i) unexhausted insurance policies constitute “property” of a dissolved corporation, (ii) Delaware’s statutory corporate dissolution scheme does not include a generally applicable statute of limitations, and (iii) dissolved corporations remain subject to a direct suit within 3 years of dissolution, and can be sued through the appointment of a receiver at any time. Although Krafft-Murphy addressed liability for asbestos exposure, its holding applies to any claim involving a long latency or discovery period, such as environmental or pharmaceutical exposures. The import is that insurers may be called upon to respond to claims for years, and perhaps many decades, after the insured corporation was dissolved.
Formed in 1952, Krafft-Murphy was in the plastering business and produced some products containing asbestos. Starting in 1989, the company faced numerous asbestos-related personally injury claims. The company formally dissolved in 1999, but did not follow the safe-harbor options of the statutory dissolution scheme by notifying creditors of the dissolution and/or making provisions for claims of future creditors. The company’s insurers continued its defense following the dissolution. In 2010, the company – through its insurers – began moving to dismiss the pending lawsuits on the theory that the company could no longer be held liable beyond the 3-year anniversary of its dissolution. Hence, the insurers argued that since the company could not be held liable, its insurance coverage could not be triggered.
In rejecting the insurers’ arguments, the Court analyzed the applicable statutory dissolution scheme and ruled that it nowhere provides for a statute of limitations on claims against a dissolved corporation. The Court held that contingent contractual rights, such as unexhausted liability insurance policies, are “property” so long as they are capable of vesting. Since the company was subject to suit, either directly within 3 years of dissolution or any time thereafter through appointment of a receiver, the unexhausted insurance policies were capable of vesting. And, therefore, because a receiver may be appointed to take charge of the dissolved company’s property (i.e., insurance coverage) and wind up its affairs, including representing the company in litigation, insurers may be called upon by a receiver to answer for claims against long-dissolved corporations until coverage is exhausted.
For more information regarding this alert, please contact Marc Casarino (302.467.4520 / email@example.com).