Amalgamation Explained

Amalgamation Pic.1It is often lamented that the amount of liability that can be assessed to a defendant in a subrogation matter is inversely proportional to their ability to satisfy a judgment. The easier it is to prove a defendant is responsible, the higher the chances the defendant doesn’t have the coverage or assets to pay for the sustained damages. In modern times, finding a “pocket” to reach into to pay a claim is further complicated by the existence of the protections granted to the owners of companies. In most states, getting a recovery from the rich owner of a company with no assets (known as “piercing the corporate veil”) is not possible unless the company was set up for some nefarious purpose, such as fraud, or if the company was set up for the sole purpose of being a shell to limit the liability of its owners/shareholders and serves no other purpose.

One way to hold other entities responsible for the financial obligations of another that works around the high bar set for piercing a corporate veil is called amalgamation. Under the theory of amalgamation, the rules for piercing a corporate veil of a “parent” company, even if it is a wholly owned subsidiary, are still valid. However, if the target company has sibling companies that are owned and/or substantially controlled by the same parent company, courts have allowed judgments to be satisfied by any or all of the sibling companies for the liability of one of the sibling companies.
In a subrogation context, this could be the solution to a common problem. For instance, for corporate liability purposes, a parent company may set up a holding company, a construction company and a sales company to develop commercial or residential land. If the construction company completes the development, and thereafter goes out of business, and whatever builder’s risk or GCL policy it had is no longer active afterward, there may not be any assets or coverage to satisfy a claim for damages caused by the contracting company’s negligent construction. Under a piercing the corporate veil scenario, the parent company will not be liable for the claims. However, if the sales company or the holding company is still in business, and either has assets, the theory of amalgamation could allow a plaintiff to use those assets to satisfy a judgment against the construction company.
Admittedly, amalgamation is not likely to come into play in a normal setting, but it is something that could turn a dud case into a stud case for the carrier whose counsel is thinking creatively.

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