A number of the policies issued between 1963 and 1968 provided the insurers with a right to subrogation.

In 1986, Hanson Trust PLC purchased SCM in a hostile takeover. SCM adopted a plan of liquidation and dissolution where it distributed its remaining assets and liabilities between 20 “fan companies,” entitled HSCM 1 through 20.

SCM placed the assets and liabilities of the Glidden paints business into HSCM-6.

SCM memorialized this distribution in a memorandum that expressly noted that the insurance policies issued to Glidden and SCM were excluded from the distribution to HSCM-6.

Following the distribution of assets to HSCM-6, the stock of HSCM-6 and all remaining undistributed assets of SCM were placed in HSCM-20, including the insurance policies.

In 1986, HSCM-20 entered into a purchase agreement under which it sold all the stock in HSCM-6 to ICI American Holdings (the “1986 Purchase Agreement”). Although ICI American Holdings held all the HSCM-6 stock, HSCM-20 retained the insurance policies.

The 1986 Purchase Agreement also included certain indemnity obligations, due to successor liability concerns. Under Section 9.1(c) of the 1986 Purchase Agreement, HSCM-20 agreed to indemnify ICI American Holdings for an eight year period between 1986 and 1994 for claims arising from:

product safety or liability, health or welfare conditions or matters arising from or relating to acts, omissions, events or conditions of or relating to the Business, the Predecessor Business or the Former Business occurring or existing prior to the Closing or otherwise arising out of or relating to the conduct of the Business, the Predecessor Business or the Former Business prior to the Closing.

Under Section 9.3 of the 1986 Purchase Agreement, ICI American Holdings agreed to indemnify HSCM-20 after 1994:

from, against, and in respect of any Claims relating to the Business arising from or relating to the acts, omissions, events or conditions of or relating to the Business, the Predecessor Business or the Former Business occurring or existing prior to, on or after the Closing or otherwise arising out of or relating to the conduct of the Business, the Predecessor Business or the Former Business prior to, on or after the Closing arising against Indemnitees for matters referred to in Section 9.1(b), 9.1(c) or 9.1(e) to the extent that [ICI American Holdings] would not be entitled to indemnity under Sections 9.1 and 9.2.

Through a series of corporate transactions, HSCM-20 became Millennium Holdings LLC and ICI American Holdings assigned HSCM-6 to an entity that became Akzo Nobel Paints (“ANP”). Accordingly, based on the 1986 Purchase Agreement, Millennium and its predecessors were required to indemnify ANP and its predecessors from 1986 to 1994. In turn, ANP and its predecessors were required to indemnify Millennium and its predecessors from 1994 onward.

Commencing in 1987, a number of lawsuits were filed across the nation against the predecessors of Millennium and ANP, alleging either personal injury or property damage from the lead paint they produced, or that the lead paint was a public nuisance requiring abatement (the “Lead Cases”). Between 1987 and 1994, pursuant to the 1986 Purchase Agreement's indemnification provision, ANP's predecessors were indemnified by Millennium's predecessors for their defense costs in the Lead Cases.

However, when the indemnity obligation flipped in 1994, ANP's predecessor refused to indemnify Millennium's predecessor, claiming it was not obligated to do so under the 1986 Purchase Agreement. As a result, in 1994, ANP's predecessor and Millennium's predecessor commenced actions against each other in both New York and Ohio state courts to resolve the dispute. That litigation settled in 2000, and the settlement agreement incorporated a novation agreement under which ANP acquired ICI American Holdings's indemnity obligation under Section 9.3 of the 1986 Purchase Agreement.

The parties amended the 1986 Purchase Agreement consistent with the settlement (the “Amended Purchase Agreement”). The settlement, however, expressly left open the parties' indemnification obligations regarding the Lead Cases.

During pendency of the 1994 litigation, the London Insurers agreed to pay the defense costs of both Millennium and ANP under an interim defense agreement. However, the London Insurers terminated that funding agreement in 2000 and sought a declaration in Ohio state court that they were not required to provide ANP with a defense and indemnification in the Lead Cases.

In 2006, the Ohio Supreme Court held that ANP was not covered under the relevant policies “by operation of law or by contract,” as it was not a named insured on any of the relevant policies and, additionally, its subsequent purchase of HSCM-6 included an assumption of liabilities.

Thereafter, in 2008, Millennium commenced an action seeking indemnification from ANP for fees and claims associated with the Lead Cases.

ANP asserted certain counterclaims and the London Insurers filed a motion to intervene in the action.

While that motion was pending, Millennium's settlement of a California lead case, referred to as the Santa Clara Action, was approved by the federal bankruptcy court for the sum of $8.5 million. The London Insurers contributed approximately $2.8 million and Northern Assurance contributed approximately $370,000 (roughly $3.2 million collectively) to Millennium's satisfaction of this settlement.

Millennium and ANP then entered into a settlement agreement to resolve their claims in the Millennium action, under which ANP agreed to pay Millennium $3 million in satisfaction of all claims between them, and to terminate any obligations under the amended purchase agreement. The settlement agreement did not impact the insurers' subrogation rights under the 1986 Purchase Agreement.

Following execution of that settlement agreement, the trial court granted the London Insurers' earlier motion to intervene in the Millennium action.

The London Insurers sought a declaration that they were entitled to subrogate (both equitably and contractually) to Millennium's indemnification rights in the 1986 Purchase Agreement and, as a result, to recover from ANP amounts that were paid by the London Insurers on behalf of Millennium in connection with the Lead Cases.

At that juncture, the London Insurers' claim against ANP for subrogation was the only remaining claim in the Millennium action, as ANP and Millennium's settlement had resolved the claims between them.

Northern Assurance subsequently joined the Millennium action as a plaintiff when its separate indemnification action against ANP, seeking its contribution to the Santa Clara settlement, was consolidated with the Millennium action.

The insurers moved for partial summary judgment on liability and ANP cross-moved for summary judgment dismissing the complaints. Specifically, ANP argued that the insurers' subrogation claim was barred by the antisubrogation rule.

Although the trial court determined that under the 1986 Purchase Agreement ANP was not an insured, it concluded that because the insurers sought to recover for the very risk they insured, the antisubrogation rule prohibited the insurers' right of subrogation. An intermediate appellate court affirmed, and the dispute reached the New York Court of Appeals.

The New York Court of Appeals Decision

The court reversed.

In its decision, the court explained that the antisubrogation rule required a showing that the party the insurer was seeking to enforce its right of subrogation against was its insured, an additional insured, or a party who was intended to be covered by the insurance policy in some other way.

Here, the court observed, ANP and its predecessor were not insured under the relevant insurance policies. “When SCM transferred the assets and liabilities of its paints business to HSCM-6 (ANP's predecessor), the insurance policies that had applied to SCM were specifically excluded from that distribution,” the court noted.

The court said that if it extended application of the antisubrogation rule to non-covered third parties, an insurer that fulfilled its obligation to pay on the insured risks “would essentially be foreclosed from the ability to subrogate.”

The court concluded that because ANP was not an insured, there was no risk that the insurers would “shirk their obligation to one insured in favor of the other” and “no reason to apply the antisubrogation rule under these facts.”

The case is Millennium Holdings LLC v. Glidden Co., No. 38 (N.Y. May 5, 2016). Attorneys involved include: Carl S. Kravitz, for appellant; Maura Monaghan, for respondents; United Policyholders; Complex Insurance Claims Litigation Association, amici curiae.