State Auto Property and Casualty Insurance Company, a South Carolina Corporation v. EASTERN DATA SYSTEMS, No. 08-1481  INCORPORATED; EPS NETWORK SOLUTIONS, INCORPORATED

PUBLISHED
Filed: November 16, 2009
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 STATE AUTO PROPERTY AND
CASUALTY INSURANCE COMPANY, a
South Carolina Corporation,
Plaintiff-Appellant,
v.
EASTERN DATA SYSTEMS, No. 08-1481 
INCORPORATED; EPS NETWORK
SOLUTIONS, INCORPORATED,
Defendants-Appellees,
FEDERAL INSURANCE COMPANY,
Intervenor/Defendant-Appellee. 

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 STATE AUTO PROPERTY AND
CASUALTY INSURANCE COMPANY, a
South Carolina Corporation,
Plaintiff-Appellee,
v.
EASTERN DATA SYSTEMS, No. 08-2096 
INCORPORATED; EPS NETWORK
SOLUTIONS, INCORPORATED,
Defendants-Appellants,
FEDERAL INSURANCE COMPANY,
Intervenor/Defendant-Appellant. 
 STATE AUTO PROPERTY AND
CASUALTY INSURANCE COMPANY, a
South Carolina Corporation,
Plaintiff-Appellant,
v.
EASTERN DATA SYSTEMS, No. 08-2157 
INCORPORATED; EPS NETWORK
SOLUTIONS, INCORPORATED,
Defendants-Appellees,
FEDERAL INSURANCE COMPANY,
Intervenor/Defendant-Appellee. 
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ORDER OF CERTIFICATION TO THE
SUPREME COURT OF APPEALS OF WEST VIRGINIA
I. Questions Certified
The United States Court of Appeals for the Fourth Circuit,
exercising the privilege afforded it by the State of West Vir-
ginia, pursuant to the Uniform Certification of Questions of
Law Act, W. Va. Code §§ 51-1A-1 to -13, respectfully
requests the Supreme Court of Appeals of West Virginia to
answer the following question:
1. When two corporate entities have merged, does
West Virginia Code § 31D-11-1107(a)(3) operate on
its face to avoid (or void) an otherwise applicable
non-assignment clause in a business auto insurance
policy, issued pre-merger to the non-surviving cor-
poration?
An affirmative answer to this question is outcome determi-
native in the present appeal. Moreover, in our view, there is
no controlling appellate decision, constitutional provision, or
statute of West Virginia which answers this question. Accord-
ingly, we believe the question appropriate for certification.
See W. Va. Code § 51-1A-3.
If the Supreme Court of Appeals of West Virginia answers
the above stated question in the negative, we respectfully
request that the court proceed to answer the following ques-
tion:
Would West Virginia Code § 31D-11-1107(a)(3)
apply nonetheless if the insurable risks under the
business auto insurance policy did not increase post-
merger?
As is the case with our first question, in our view, there is no
controlling appellate decision, constitutional provision, or
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statute of West Virginia which answers this second question.
Accordingly, we believe the question appropriate for certifica-
tion. See W. Va. Code § 51-1A-3.
This court acknowledges that the Supreme Court of
Appeals of West Virginia may reformulate these questions.
See W. Va. Code § 51-1A-4, -6(a)(3).
II. Relevant Facts and Relevant Procedural History
In February 2000, Eastern Data Systems, Inc. (EDSI), an
installer of communications wiring, purchased a business auto
liability insurance policy, with a $1,000,000.00 limit, from
State Auto Insurance Company (State Auto). At the time,
EDSI was located in Beckley, West Virginia. In October
2002, Engineering Professional Services (EPS), located in
New Jersey, purchased one-hundred percent of EDSI’s stock,
making EDSI a wholly owned subsidiary of EPS. EDSI con-
tinued to operate at its Beckley location.
Effective January 1, 2003, EDSI merged into one of EPS’s
affiliated operating companies, EPS Network Solutions, Inc.
(Network Solutions), giving Network Solutions a West Vir-
ginia location of operation. In light of the merger (the
Merger), in February 2003, the vehicles previously owned by
EDSI were retitled to Network Solutions. Notably, the busi-
ness auto liability insurance policy originally issued by State
Auto to EDSI in February 2000 was renewed until its cancel-
lation in May 2004 (the State Auto BAP) with EDSI listed as
the named insured.
On May 26, 2003, Network Solutions employee Burt Ken-
nedy blacked out while driving on company business in
Washington State and caused a multiple vehicle accident (the
Accident). At the time of the Accident, Burt Kennedy was
driving a 1996 Ford van owned by Network Solutions, which
van EDSI had owned prior to the Merger. At the time of the
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Accident, the State Auto BAP specifically listed the 1996
Ford van on the schedule of covered autos.
At the time of the Accident, EPS also had a business auto
insurance policy, with a $1,000,000.00 limit, in force with
Federal Insurance Company (the Federal BAP). The parties
do not dispute that the Federal BAP also provided coverage
for Network Solutions. Federal Insurance Company (Federal)
settled all of the personal injury and property damage claims
arising from the Accident against itself, EPS, EDSI, Burt
Kennedy, and State Auto for a total of $851,510.55. Federal
also incurred $1,891.50 in related costs to settle the claims.
Federal then sought contribution from State Auto to reim-
burse it for one-half of the total settlement amount and one-
half of the related costs. State Auto disputed Federal’s contri-
bution claim on the basis, inter alia, that the State Auto BAP
contained a non-assignment clause (the Non-Assignment
Clause), which nullified such policy as it pertained to EPS or
Network Solutions. The Non-Assignment Clause provided:
"Your rights and duties under this policy may not be trans-
ferred without our written consent except in the case of death
of an individual named insured." (J.A. 28). State Auto never
received a request to assign the State Auto BAP to Network
Solutions or EPS, prior to the Accident.
Federal took the position that the State Auto BAP trans-
ferred to Network Solutions by operation of law, on January
1, 2003, pursuant to West Virginia Code § 31D-11-
1107(a)(3), which provides, in relevant part: "When a merger
takes effect . . . [a]ll property owned by, and every contract
right possessed by, each corporation or other entity that
merges into the survivor is vested in the survivor without
reversion or impairment[.]" Id. From here forward, we will
refer to this code section as "West Virginia’s Merger/Transfer
Statute."
On August 15, 2005, State Auto filed the present declara-
tory judgment action against EDSI and Network Solutions,
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seeking a declaration that it has no duty to defend or provide
coverage to Network Solutions, EPS, or Burt Kennedy for the
damages arising from the Accident. Federal intervened as a
defendant and filed a counterclaim against State Auto seeking
a declaration that State Auto has a duty to defend and provide
coverage to Network Solutions, EPS, and Burt Kennedy. As
part of its counterclaim, Federal sought reimbursement for
one-half of the total amount that it paid to settle the underly-
ing claims arising from the Accident and one-half of its
related costs.
On cross-motions for summary judgment, the district court
held in favor of Federal on its counterclaim, reasoning that
EDSI’s rights under the State Auto BAP transferred to Net-
work Solutions by operation of law, pursuant to West Virgin-
ia’s Merger/Transfer Statute, despite the existence of the Non-
Assignment Clause in the State Auto BAP. In reaching this
holding, the district court concluded that State Auto had not
forecast sufficient evidence for a reasonable jury to find that
the risk of insuring Network Solutions under the State Auto
BAP was greater than insuring EDSI under the same policy.
With respect to Federal’s counterclaim, the district court
entered a monetary judgment in favor of Federal for
$426,701.00, representing one-half of the total amount that
Federal paid to settle the underlying claims arising from the
Accident and one-half of its related costs. The district court
also denied State Auto’s motion for summary judgment and
granted summary judgment in favor of Federal, Network
Solutions, and EDSI with respect to State Auto’s claim for
declaratory relief.
State Auto challenges the district court’s grant of summary
judgment in favor of Federal, Network Solutions, and EDSI
with respect to its claim for declaratory relief and the district
court’s grant of summary judgment in favor of Federal with
respect to Federal’s counterclaim.
We have already decided that the district court did not err
in concluding that State Auto failed to forecast sufficient evi-
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dence at summary judgment for a reasonable jury to find that
the risks of insuring Network Solutions under the State Auto
BAP were greater than the risks of insuring EDSI under the
same policy. Accordingly, the certified questions set forth in
Part I of this Order of Certification contemplate this decision.
III. Contentions of the Parties
State Auto contended below and continues to contend on
appeal that, when two corporate entities merge, West Virgin-
ia’s Merger/Transfer Statute does not operate on its face to
avoid (or void) an otherwise applicable non-assignment
clause in a business auto insurance policy, issued pre-merger
to the non-surviving corporation. State Auto acknowledges
that there are no West Virginia cases directly on point in sup-
port of its contention. However, State Auto cites Smith v.
Buege, 387 S.E.2d 109 (W.Va. 1989), for the proposition that
the Supreme Court of Appeals of West Virginia disfavors the
transfer of contractual rights under an insurance policy before
a loss without consent of the insurer, which proposition, it
contends, is consistent with the purpose of non-assignment
clauses in insurance policies to protect the insurer from
increased risk for which it had not contemplated during
underwriting.
Federal, Network Solutions, and EDSI, on the other hand,
contend that West Virginia’s Merger/Transfer Statute operates
on its face to avoid (or void) an otherwise applicable non-
assignment clause in a business auto insurance policy, issued
pre-merger to the non-surviving corporation. And while these
parties also acknowledge the absence of controlling West Vir-
ginia case law on the subject, they see no need for it, given
their position that the language of West Virginia’s Merg-
er/Transfer Statute clearly and unambiguously defeats the
Non-Assignment Clause in the State Auto BAP. With respect
to Smith, Federal, Network Solutions, and EDSI distinguish it
on two grounds. First, Smith did not address the issue of an
assignment or transfer by operation of law, and second, Smith
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was decided prior to the enactment of West Virginia’s Merg-
er/Transfer Statute.
IV. Names of Counsel of Record for the Parties
Counsel for State Auto
Jeffrey L. Robinette, Esquire
Lorna M. Waddell, Esquire
The Robinette Legal Group, P.L.L.C.
475 Fairchance Road
Morgantown, W.Va. 26508
Counsel for Federal, Network Solutions, and EDSI
Scott W. Andrews, Esquire
Offutt Nord, P.L.L.C.
P.O. Box 2868
949 Third Avenue, Suite 300
Huntington, W.Va. 25728
V. Conclusion
In sum, we conclude that answers to the question(s) certi-
fied herein will be determinative of one or more issues in the
present appeal, and there is no controlling appellate decision,
constitutional provision or statute of West Virginia. Accord-
ingly, pursuant to the privilege made available by the West
Virginia Uniform Certification Act, we respectfully:
(1) Certify the questions stated in Part I. of this
Order of Certification to the Supreme Court of
Appeals of West Virginia for resolution;
(2) Order the Clerk of this court to forward to the
Supreme Court of Appeals of West Virginia, under
the official seal of this court, a copy of this Order of
Certification, together with the original or copies of
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the record before this court to the extent requested
by the Supreme Court of Appeals of West Virginia;
and
(3) Order that any request for all or part of the
record be fulfilled by the Clerk of this court simply
upon notification from the Clerk of the Supreme
Court of Appeals of West Virginia.
This Order of Certification is entered with the concurrences
of Judge Agee, United States Circuit Judge, and Judge Marga-
ret B. Seymour, United States District Judge for the District
of South Carolina, sitting by designation.
/s/ Clyde H. Hamilton
__________________________________
Clyde H. Hamilton
Senior United States Circuit Judge
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