Overruling a "landmark" decision that had placed
California at odds with several other jurisdictions and contravened
its own statutory law, the California Supreme Court in Fluor
Corporation v. Superior Court of Orange County, 2015 WL
4938295 (Aug. 20, 2015), ruled that a liability insurance
policy's anti-assignment clause is not enforceable with regard
to a claim arising from loss, injury, or damage that, at the time
of the assignment, already has occurred. In its prior decision in
Henkel Corp. v. Hartford Accident & Indemnity Co., 290
Cal. 4th 934 (2003), the California Supreme Court had held that an
insured's assignment of its rights under a policy, without the
insurer's consent, would be effective only if the claim had
been reduced to a sum of money due under the policy, e.g.,
a settlement or judgment. Henkel, 29 Cal. App. 4th at 944.
In reaching that conclusion, however, the Henkel court did
not consider the applicability of an 1872 statute, California
Insurance Code Section 520, which expressly renders void any
agreement not to assign, post-loss, an insured's claim against
an insurer under the policy. In Fluor, the California
Supreme Court determined that Section 520 controlled, ruling that
insurer consent was not necessary to assign a right of insurance
coverage under a third-party liability policy for a loss that
already has occurred.
In 2000, Fluor Corporation undertook a corporate restructuring
known as a "reverse spin-off," whereby, among other
things, the original Fluor Corporation created a new subsidiary
that retained the name "Fluor Corporation." The original
Fluor Corporation transferred and assigned its assets, including
its insurance policies, and its rights and liabilities to the new
Fluor Corporation without requesting or receiving consent from its
insurance carrier, Hartford Accident & Indemnity Corporation
("Hartford"). Hartford later denied coverage for the new
Fluor Corporation's insurance claims arising from
pre-assignment losses, contending that the original Fluor
Corporation's presumed assignment of its insurance coverage
claims to the new Fluor Corporation violated the Hartford
policy's anti-assignment provision.
Hartford filed an action for declaratory relief regarding the new
Fluor Corporation's right to insurance coverage under the
policies. The trial court denied Fluor Corporation's motion for
summary judgment, reasoning that the California Supreme Court's
2003 decision in Henkel was decisive and that it was
"duty-bound to apply Henkel, not [section] 520"
of the Insurance Code. The Court of Appeals upheld the decision of
the trial court, determining that Henkel controlled and
that Section 520 applied only to first-party policies, not
third-party liability policies. The California Supreme Court
disagreed.
The anti-assignment clause in the original Fluor Corporation's
policy was identical to the one in Henkel, barring
"[a]ssignment of interest under this policy" absent the
insurer's consent. In Henkel, the California Supreme
Court rejected Henkel's argument that the right to invoke
coverage "under an occurrence-based liability policy ... can
be assigned without consent once the event giving rise to liability
has occurred." Henkel, 29 Cal. App. 4th at 944.
Relying on the general rule that an anti-assignment provision does
not preclude the assignment of money due under the insurance
contract, the Court in Henkel created a new bright-line
rule. See id. Specifically, it held that a claim for
insurance coverage may be assigned notwithstanding an
anti-assignment clause only if there is a fixed sum of money due or
to become due. Id.
Disagreeing with the trial and lower appellate court and its prior
decision in Henkel, the California Supreme Court in
Fluor acknowledged that an anti-assignment clause
would not apply to a loss that had already
occurred, regardless of whether the loss had been
reduced to a fixed sum. The court primarily relied on the language
of Section 520 (which was not previously considered in
Henkel): "An agreement not to transfer the claim of
the insured against the insurer after the loss has happened, is
void if made before the loss except as otherwise provided
...." The key interpretation issue rested on the phrase
"after a loss has happened." The Court examined the
legislative history and noted that the sole published opinion
citing Section 520 addressed the provision in the context of
first-party insurance only (Gillis v. Sun Ins. Office,
Ltd., 238 Cal. App. 2d 408, 415 (1965)), and did not consider
the meaning of "loss" as used in the statute. Focusing on
the liability insurance context, the Court found that an
insured's right to indemnity accrues at the time of injury or
damage, not the time that the insured has incurred an actual
monetary loss through a judgment or settlement. Moreover, the Court
endorsed the reasoning of decisions issued by courts in other
jurisdictions (and California cases preceding Henkel)
finding that an insured may assign its post-loss insurance rights.
Consistent with other case law on this issue, the Court concluded
that the phrase "after a loss has happened" should be
interpreted as a loss sustained by a third party that is covered by
the insured's policy, and for which the insured may be
liable.
The California Supreme Court's holding in Fluor
conforms to the mandate of Section 520 and aligns California with
the majority of jurisdictions ruling that an insurer's consent
is not required for a post-loss assignment of insurance coverage.
This decision is an important victory for policyholders, which can
rest assured that the insurance coverage in place at the time a
loss occurs will continue to provide protection against future
claims and liability arising from such loss. This is true even if
the insurance coverage is assigned, post-loss, to another entity
without insurer consent, which happens frequently in the context of
mergers, acquisitions, and other corporate transactions.
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