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Commercial General
Liability |
Direct Action Rule |
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Environmental Impairment |
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Studebaker Corporation
(Studebaker) was a Michigan corporation that produced wagons and later automobiles
in the city of South Bend, Indiana. It b egan operations in the 1950s.
Studebaker's manufacturing facilities encompassed 104 acres of land and 3.65
million square feet of buildings in the city. Studebaker stopped manufacturing
automobiles in December 1963 and eventually combined with Worthington
Corporation to form a new company, Studebaker-Worthington, Inc. (SWI).
Studebaker was reincorporated as Hallpark Enterprises, Inc. (Hallpark), and
transferred its assets to Saraband Properties, Inc. (Sarabrand), a wholly owned
subsidiary of SWI. Saraband also assumed "all of the liabilities and
obligations of [Studebaker] existing on [November 22, 1967]." Hallpark
dissolved the original Studebaker Corporation in 1968.
After Studebaker stopped
manufacturing automobiles in South Bend, the facilities were used for a variety
of other operations. In the early 1990s, the city conducted an environmental
evaluation of the premises and found environmental releases that affected the
soil and groundwater at those facilities and grounds. As the owner of
significant portions of the former Studebaker facilities, the city filed a
complaint for damages and declaratory relief against Certain Underwriters at
Lloyd's, London (Lloyd's), Certain London Market Insurance Companies (London),
Century Indemnity Company (Century), and Zurich American Insurance Company
(Zurich). (collectively Insurers). The insurers allegedly provided insurance to
Studebaker between 1949 and 1963. The city also sued McGraw-Edison Company
(McGraw-Edison), the alleged successor to Studebaker. The Insurers filed
motions to dismiss the complaint, alleging the city did not have a claim
against them. The city asked for appointment of a receiver to represent
Studebaker's interests, particularly with respect to the pursuit of coverage
under the company's insurance policies. The trial court granted the insurers'
motion to dismiss and denied the city's motion for appointment of a receiver.
The city appealed.
On appeal, the Insurers
argued that the city's action was barred by the "direct action rule,"
a rule that bars a third party from pursuing a claim based on the actions of an
insured directly against the insurer. The city acknowledged the existence of
the direct action rule but asserted that its case fell under an exception to
the rule. The Court of Appeals of Indiana agreed. It found that the kinds of
actions allowed as exceptions to the direct action rule were actions that seek
only a declaration of the insurer's responsibilities should the allegations regarding
the insured's conduct be proved. The city was not seeking any direct
compensation from the insurance company. It only sought a declaration that, if
it were to prove its underlying case, the Insurers would be obligated to
provide coverage. As a result, the city's action fell under the exception to
the direct action rule.
The Insurers and
McGraw-Edison also argued that the insurance did not cover environmental
liability because Michigan law barred any claims against Studebaker as of 1971,
two years after it was dissolved. The court disagreed. Had the city named only
Studebaker as a party, the court would have agreed with the Insurers' argument.
However, the city also sued McGraw-Edison, alleging it was successor to
Studebaker's assets as well as its insurance policies and liabilities existing
at the time of dissolution. As a result, Michigan law did not require dismissal
of the city's action against the Insurers.
The decision of the trial
court dismissing the city's action against the insurers was reversed and the
case remanded to the trial court for further action. The decision of the trial
court denying the city's motion to appoint a receiver was affirmed.
City of South Bend v.
Century Indemnity Company-No.49A02-0403-CV-201-Court of Appeals of Indiana-January
18, 2005-821 North Eastern Reporter 2d 5