Dissolved Corporations in Delaware Retain Immortality and Liability

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The Supreme Court of Delaware recently ruled that asbestos claimants can pursue their personal injury claims against dissolved corporations if the dissolved corporations have undistributed “property,” including unexhausted insurance policies.  The decision, In the Matter of Krafft-Murphy Company, Inc., No. 85, 2013 (November 26, 2013), involved a Delaware corporation that ceased operations in 1991 and dissolved in 1999.  Krafft-Murphy’s business involved the supply and installation of Sprayed Limpet Asbestos.  Krafft-Murphy was named as a defendant in hundreds of asbestos-related lawsuits.  The corporation, while engaged in the supply and installation of asbestos-related products, obtained liability coverage from several insurers that had not been exhausted.

 

Despite the 1999 dissolution, tort claimants continued to file asbestos-related lawsuits against the corporation in other jurisdictions.  The impetus for the Delaware decision was a series of motions to dismiss filed by Krafft-Murphy in which it argued that, because it had been dissolved for more than three years, it could no longer be sued under Delaware law.  In response, the claimants filed a motion to appoint a receiver in the Delaware Court of Chancery.

 

The Supreme Court of Delaware ruled that the tort claims could be properly maintained against Krafft-Murphy because, despite the dissolution, the corporation had not exhausted its insurance policies.  Therefore, the corporation maintained property interests against which the claimants could proceed.  Moreover, Delaware law authorizes the court to appoint a receiver to oversee and facilitate the dissolved corporation’s business, including participation in litigation.

 

Notably, the court ruled that, because Krafft-Murphy maintained unexhausted insurance policies, the 1999 corporate dissolution did not extinguish the corporation’s potential liability to third parties by time-barring those claims.  Therefore, the court’s decision essentially gutted the statute of limitations for commencement of asbestos-related personal injury claims against Krafft-Murphy so long as insurance proceeds remained available.

 

The Krafft-Murphy decision is notable because it seemingly turns generally accepted principles of corporate law on their heads.  The decision departs from those of other jurisdictions, which have decided this issue the other way (e.g., California, Illinois, Ohio and Michigan).  At least in Delaware, the wind-up and dissolution of a corporation no longer occurs within a finite period of time while liability insurance proceeds are unexhausted.  Moreover, the decision indicates that there is no generally accepted statute of limitation that would time-bar claims against dissolved corporations, which is somewhat remarkable given that Delaware is often considered a haven for corporations. 

Topics:  Corporate Dissolution, Corporate Governance, Liability Insurance, Statute of Limitations

Published In: Business Organization Updates, Civil Procedure Updates, Insurance Updates, Personal Injury Updates, Products Liability Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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