In the case of Kerry, Inc. v. Travelers,  plaintiff Kerry, Inc. purchased virtually all of St. Louis Flavors Corp.’s assets under an Asset Purchase Agreement in 2002 (the APA). The St. Louis Flavors Corp. had operated a flavorings business where it manufactured diacetyl and diacetyl-containing products.  Diacetyl is a natural byproduct of fermentation used in, among other things, artificial butter flavoring.

After the sale, several underlying actions arose and alleged personal injuries arising from exposure to St. Louis’ diacetyl.  The underlying actions also alleged tortious conduct by Kerry on a de facto merger and continuation theory of liability.  As such, the defendant insurer, Travelers, which had insured St. Louis, did not believe it had a duty to defend Kerry in the underlying actions because the underlying actions were not brought until after the sale between Kerry and St. Louis.  Travelers argued that it did not consent to a transfer of benefits from St. Louis to Kerry.  However, the Court found this argument unpersuasive, as all of the underlying plaintiffs’ product sale and exposure allegations show that the potential liabilities in question arose before the transfer between St. Louis and Kerry.  As such, the Court reasoned that Travelers could not claim that its risk increased from the transfer of the policies from St. Louis to Kerry, regardless of the size of the companies.

So, the bottom line here is that the Court found that Travelers was required to defend Kerry in the underlying actions a fact which left Kerry from clamoring…“I can’t believe its not…covered.”

Special thanks to Joe Fusco for his contributions to this post.

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