Mergers and acquisitions have dotted the landscape of corporate America for years. And, with the current economic downturn, more are expected in the coming years. A frequent issue that arises from any merger or acquisition is how to meld the two existing insurance programs. Typically, one insurance program will be selected and the remaining coverage will be canceled. However, a state appellate court in California has issued a ruling that may affect future mergers.

The court ruled that the successor corporation is entitled to the insurance policy benefits of its predecessor company, if the successor has assumed the other’s liabilities. This decision applies even if the policies have not been assigned to the successor company, as long as the claims arose during the period before the businesses were merged.

The court also noted that to rule otherwise would provide an unfair advantage to the insurers, and would represent a windfall to those insurers that underwrote and received premiums for the risks.