In Fluor Corporation v. Superior Court (No. G045579, filed 8/30/12), the appeals court held that a company that acquires the policyholder’s assets and liabilities cannot receive the benefits of the policyholder’s liability coverage in the absence of approval from the insurer where the policy contains a consent-to-assignment clause.
The case involved a corporate restructuring known as a “reverse spinoff” in which the Fluor Corporation (“Fluor-1”) transferred its engineering and construction services to another entity also named Fluor Corporation (“Fluor-2”) in the fall of 2000. Meanwhile, Fluor-1 retained coal mining and energy operations and renamed itself “Massey Energy Company.” Thus, Fluor-1 and Fluor-2 became independent public companies, with neither having an ownership interest in the other.
In the 1970s and 1980s, Hartford had provided coverage to Fluor-1 under several CGL policies and beginning in 2001, commenced defending and indemnifying various Fluor entities against asbestos claims arising out of Fluor-1’s business. A dispute over coverage arose and litigation ensued, with Hartford cross-complaining for a declaration that it was not obliged to defend or indemnify Fluor-2 for the asbestos claims because neither Flour-1 nor Flour-2 had ever sought consent to the assignment of insurance rights in the reverse spinoff.
In response, Flour-2 argued that Hartford’s consent to assignment clauses were void under an obscure provision of the California Insurance Code that states: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss….” (Cal.Ins.Code, § 520.)
According to Fluor-2, the relevant losses occurred at least 15 years before the reverse spinoff in 2000, and Insurance Code section 520 “reflects a legislative pronouncement that once the fortuitous event triggering coverage … has happened, the beneficiary of an insurance contract should [be] entitled to its promisor’s performance, and thus have the ability to freely assign such rights.” In other words, the successor corporation argued that once the loss occurs, the insurer’s obligation has crystallized and is fully assignable, without consent.
Citing Henkel v. Hartford Acc. & Indem. Co. (2003) 29 Cal.4th 934, the appeals court disagreed. In Henkel, the Supreme Court enforced a consent-to-assignment clause, holding that since the two Henkel corporations had retained their separate identities, and the claims had not been reduced to a sum of money due, the company that had acquired the policyholder’s assets and liabilities could not receive the benefits of the policyholder’s coverage without the consent of the insurer.
Henkel held that consent-to-assignment clauses are generally enforceable, and the continued existence of the predecessor corporation poses a potential dispute justifying a right to require consent: “If both assignor and assignee were to claim the right to defense, the insurer might effectively be forced to undertake the burden of defending both parties. In view of the potential for such increased burdens, it is reasonable to uphold the insurer’s contractual right to accept or reject an assignment.”
The Fluor court rejected an argument that Insurance Code section 520 demonstrates a Legislative intent to forbid limits on assignment after a loss: “Insurance Code section 520, as we have noted, was first adopted in 1872, when the industrial revolution and California statehood were in their childhood, seven years before California adopted its current constitution in 1879. At the time, liability insurance did not even exist as a concept. Insurance provided protection against first party marine, fire, and property damage losses. As such, the concept of ‘loss,’ to which the 1872 statute referred, is easily identifiable for first-party property damage coverage. Before a ‘loss’ such as a ship sinking or a burned building takes place, insurers have a vested interest in their personal relationships with the named insureds, and a legally-recognized need to prevent nonconsensual assignments to less responsible insureds.”
The Fluor court distinguished the more modern concept of “loss” as it applies to third party claims for continuous and progressive damage and stated: “If Fluor-2 wants to recast the 1872 statute to account for the evolution of modern liability insurance policies on an ‘occurrence’ basis, it should direct its attention to the Legislature.” Thus, the Fluor court stated that “We will not ascribe to the dead hand of the 1872 Legislature controlling power over a medium that had yet to come into being.”
Caution, the decision in Fluor Corp. v. Superior Court (2012) 208 Cal.App.4th 1506 has been superseded by grant of review. (No. S205889, filed 12/12/12.) An opinion is no longer considered published when the Supreme Court grants review. (Cal. Rules of Court, rule 8.1105(e).)
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