In the recent decision styled as: In The Matter of Krafft-Murphy Co., Inc., CA No. 6049-VCP (Del. Ch. Nov. 9, 2011), read opinion here, the Court addressed the unusual and novel issue of whether a receiver can be appointed under 8 Del. C. § 279 for a dissolved insulation company for claimants who suffered latent asbestos injuries while working at the company but who did not bring claims related to those injuries until more than a decade after the company’s dissolution. Pending before the court was a motion to dismiss filed by the dissolved company’s insurers on behalf of the company.
Kevin F. Brady of Connolly Bove Lodge & Hutz LLP prepared this summary.
In response to significant tort liability arising from numerous asbestos-related litigations against it, Krafft-Murphy ceased operations in 1991 and formally dissolved in 1999. When it dissolved, Krafft-Murphy apparently had no distributable assets and made no distributions to creditors or shareholders but it did have liability insurance contracts that covered its asbestos-related tort liability. During its dissolution, the company did not provide notice of the dissolution to existing or potential creditors or claimants nor did its directors adopt a formal plan of dissolution. Nevertheless, the company, continued to defend and settle asbestos-related claims that were brought against it at any time within ten years after its date of dissolution. However, because the company began moving to dismiss new claims brought after July 30, 2009 (ten years after the date of its dissolution), this receivership action was filed.
After discussing the statutory scheme for the appointment of a receiver and the dissolution procedures under 8 Del. C. §§ 278 – 279 and 280 – 282, the Court concluded that “[d]espite the Insurers’ suggestion that they voluntarily defended and settled suits against the Company in the face of legal uncertainty related to the interaction between §§ 279 and 281(b), I find it reasonable to infer from the allegations in the Petition that the Insurers actually were obligated to do so under the Company’s plan of dissolution. According to Petitioners, “[b]y acquiescing to a continued presence in the defense of claims filed after the three year winding up period, the insurers have demonstrated that they know that the insurance policies issued to Krafft-Murphy were the plan of dissolution of the directors of Krafft-Murphy…. Thus, it is reasonable to infer from the Petition that, during the three years after it dissolved, the Company knew it had insurance contracts that provided coverage for asbestos-related claims and that new claims of that kind would continue to be asserted against the Company for many years to come. In addition, there is no dispute that Krafft-Murphy and its Insurers have defended and continue to defend against all such claims that were filed within ten years of the dissolution.”
After finding that that there is no ten-year bar against the appointment of a receiver under 8 Del. C. § 279, the Court concluded that “the appointment of a receiver may be necessary to represent the interests of the Company in ensuring that the plan of dissolution is carried out, that its obligations under § 281(b) are satisfied, and that the Company receives the full benefit of the insurance contracts it purchased.”