California Insurance Code section 520 does not invalidate a “consent-to-assignment” clause contained within a commercial general liability policy. ( Fluor Corporation v. Superior Court (2012) — Cal.App.4th –, WL 3741979)
Facts
In 1924, the original Fluor Corporation (“Fluor-1”) was created. Between 1971 and 1986, Fluor-1 obtained general liability insurance coverage through Hartford Accident & Indemnity Company (“Hartford”). Starting in 1985, various third parties sued Fluor-1 for injuries arising out of exposure to asbestos-containing materials. Hartford participated in defending Fluor-1 against the asbestos suits.
In 2000, as part of a corporate restructuring transaction called a “reverse spinoff,” a second Fluor Corporation (“Fluor-2”) was created. In the reverse spinoff, Fluor-1 transferred its engineering, procurement, construction and project management services to Fluor-2. Fluor-1 retained various coal mining and energy operations and renamed itself “Massey Energy Company.” As part of the transaction, Fluor-1 allegedly assigned its rights under the Hartford policies to Fluor-2, but did not obtain Hartford’s consent to the assignment. Fluor-1 and Fluor-2 became independent public companies, with neither having an ownership interest in the other.
Between 2001 and 2008, Hartford contributed toward the costs of defending and indemnifying both Fluor-1 and Fluor-2 against the asbestos lawsuits.
Eventually, Fluor-2 and Hartford became involved in coverage litigation arising from the underlying asbestos lawsuits. Among other things, Hartford asserted that it only insured Fluor-1, that the Hartford policies contained “consent-to-assignment” provisions prohibiting any assignment of the policies without Hartford’s written consent, and that Hartford had never consented to any assignment of Fluor-1’s policies to Fluor-2. Hartford thus sought a ruling that it had no duty to defend or indemnify Fluor-2 against the asbestos lawsuits.
In response, Fluor–2 moved for an order that Hartford’s “consent-to-assignment” clauses were invalid under Insurance Code section 250. That statute provides that “[a]n agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss….” The trial court, citing the California Supreme Court’s decision in Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, held that Hartford’s consent-to-assignment clause was valid and thus denied Fluor-2’s motion. Fluor-2 sought relief in the California Court of Appeal.
Holding
The California Court of Appeal upheld the trial court’s ruling. The Court of Appeal reasoned that in Henkel, the California Supreme Court upheld an insurer’s consent-to-assignment clause in substantially identical circumstances. According to the Court of Appeal, Henkel was on point and was controlling in this case.
Fluor-2 nevertheless argued that the Court of Appeal could “disregard” Henkel because the Supreme Court in Henkel had failed to consider Insurance Code section 520, which permits assignments, even without insurer consent, after the relevant “loss” has occurred. The Court of Appeal rejected this argument, noting that when the 1872 Legislature first enacted the predecessor to Insurance Code section 520, there was no liability insurance – only property insurance. Thus, the “loss” to which the statute refers must mean a property insurance loss, not a liability insurance loss. As such, section 520 did not “trump” the Supreme Court’s decision in the Henkel case.
Comment
The Court of Appeal emphasized that statutes must be considered in the context of the circumstances which existed when they were enacted. Since liability insurance did not exist when the legislature enacted section 520 in 1872, the legislature could not have contemplated that section 520 would have any application to liability insurance.
The net effect of this is that Henkelremains the law in California, and “consent-to-assignment” clauses continue to be enforceable. Of course, once a “loss” occurs and ripens into a liquidated sum, the insured is entitled to assign the policy proceedsto another party.