Court Holds Insurance Policy Applies to Merged Company

In BCB Bancorp, Inc. v. Progressive Casualty Insurance Co. , Civil Action No. 13-1261, 2017 WL 4155235 (D.N.J. Sept. 18, 2017), a federal district court analyzed the interplay of a directors and officers liability insurance policy with a New Jersey statute to determine that insurance coverage for a shareholder class action lawsuit was available to the merged entity under the insurance policy issued to the company that no longer existed after the merger.

Two banks, BCB Bancorp, Inc. (“BCB”), and Pamrapo Bancorp, Inc. (“Pamrapo”), entered into a merger agreement and became named defendants in a shareholder class action related to the merger transaction. Prior to the merger, Progressive Casualty Insurance Company (“Progressive”) issued a claims-made directors and officers liability insurance policy to Pamrapo for the policy period June 15, 2009 through June 1, 2010. The insured “Company” under the policy constituted four Pamrapo entities and each of the individual officers and directors were insured persons under the policy. Under the “Other Insurance or Indemnification” provision of the policy, the coverage provided by Progressive was to be excess coverage if there was any other non-excess insurance available or if an insured was entitled to indemnification from “any entity other than the Company[,]” “unless such other insurance is written only as specific excess insurance over the Limits of Liability providing by this Policy.” The policy did not expressly exclude coverage for the surviving entity of a merger that occurred outside the policy period.

On June 30, 2009, BCB and Pamrapo announced they had entered into a merger agreement, pursuant to which Pamrapo would merge into BCB, meaning BCB was the surviving entity. The merger was consummated on July 6, 2010. According to the merger agreement, the merger was conducted “in accordance with the New Jersey Business Corporation Act (“NJBCA”).” The merger agreement also provided that BCB “shall indemnify and hold harmless” and defend Pamrapo’s employees, including its officers and directors, to the extent that Pamrapo’s employees would be entitled such benefits under Pamrapo’s Certificate of Incorporation, bylaws, or certain disclosed agreements. The Certificate of Incorporation provided that Pamrapo would indemnify its officers and directors to the extent authorized by the NJBCA.

Shortly after the merger was announced, Pamrapo shareholders filed derivative class action lawsuits against Pamrapo, its directors and officers, and BCB, alleging claims for breach of fiduciary duty, among other claims. Those lawsuits were later consolidated into a single action. The lawsuit eventually was settled.

Pamrapo tendered the claim for coverage to Progressive on August 21, 2009. Progressive acknowledged coverage and reserved its rights under the policy. Progressive agreed to advance defense costs incurred by Pamparo and its officers and directors, subject to its reservation of rights, including the requirement that the $125,000 retention be exhausted. Among the reservations noted by Progressive was the fact that the directors and officers may be subject to indemnification from another source which would trigger the “Other Insurance or Indemnification” provision.

Pamrapo indemnified its officers and directors, paying their legal fees in the shareholder litigation until July 6, 2010 when the merger closed. Indemnifying the directors and officers for their legal fees satisfied the $125,000 retention. On July 30, 2009, less than one month after the merger closed, Progressive advised BCB that it was disclaiming coverage pursuant to the “Other Insurance or Indemnification” provision because it believed its policy was now excess of BCB’s indemnification obligation based on the merger agreement. This coverage dispute ensued.

The court relied heavily on the NJBCA in finding there was coverage under the Progressive policy. In this regard, the court noted that the NJBCA provides the surviving company in a merger “possess[es] all the rights, privileges, powers [and] immunities . . . of each of the merging or consolidating companies.” The court further noted that the NJBCA also provides that the surviving corporation “shall be liable for all the obligations and liabilities of each of the corporations so merged.” In other words, all of Pamrapo’s rights became BCB’s rights and liabilities after the merger closed, including Pamrapo’s rights under the Progressive insurance policy. Indeed, the court specifically noted that the NJBCA does not exclude insurance policies of the entity that merged with the surviving entity. Based on these statutory provisions, the court rejected Progressive’s argument that it no longer had an obligation to provide coverage under its policy after the merger closed because the surviving company (BCB) was not the “Company” identified in the policy. Thus, the court held that Progressive had to insure BCB after the merger closed just as Progressive had to insure Pamrapo before the merger closed – BCB stepped into the shoes of Pamrapo. The court further held that, to disclaim coverage after a merger, “an insurance contract must contain specific exclusionary language to prevent a transfer of rights to the surviving entity under the NJBCA.” No such exclusionary language was included in Progressive’s policy. As for Progressive’s argument that the court’s interpretation would deprive it of the benefit of the bargain and require it to incur unforeseen risks, the court rejected that argument as well, explaining that the transfer or assignment occurred after the insured event in this case, meaning Pamrapo made a valid claim for the shareholder litigation during the policy period and the merger occurred after the policy period expired, which precluded any prejudice to the insurer regarding coverage for an unforeseen risk.

With shareholder class action lawsuits often filed after a merger is announced, the court’s decision in BCB Bancorp provides important guidance for insurers and insureds when evaluating potential coverage obligations in the merger and acquisition context, particularly when an “other insurance” clause is at issue. While the decision in BCB Bancorp is driven largely by a New Jersey statute, insurers and insureds should determine whether similar provisions exist in other jurisdictions when the law of other jurisdictions is at issue.

If you have any questions regarding this post, please contact Stephen B. Stern at or (410) 260-6585 or Amitis Darabnia at or (410) 260-6592.

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