Pursuant to California Insurance Code section 520, once a covered “loss” has happened, the insured may assign its right to recover to a third party. ( Fluor Corporation v. Superior Court (2015) 61 Cal.4th 1175)
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”). Each policy contained a “consent-to-assignment” clause stating that “assignment of interest under this policy shall not bind the [insurer] until its consent is endorsed hereon.”
Starting in the mid-1980’s, various third parties sued Fluor-1 for injuries arising from exposure to asbestos-containing materials. The third parties’ injuries occurred, in part, during the time that Fluor-1’s policies through Hartford were in effect. Hartford thus 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 and construction 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.That is, Hartford paid claims on behalf of Fluor-2 for injuries Fluor-1 had allegedly caused to third parties during the Hartford policy periods.
Eventually, Fluor-2 and Hartford became involved in coverage litigation arising from the underlying asbestos lawsuits. In the coverage litigation, Hartford asserted, among other things, 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 California Insurance Code section 520. That statute provides that “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….” The trial court, citing the California Supreme Court’s prior decision in Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, held that Hartford’s consent-to-assignment clauses were valid and thus denied Fluor-2′ motion. The Court of Appeal, also relying on Henkel, affirmed the trial court’s ruling. Fluor-2 then sought, and obtained, review by the California Supreme Court.
Holding
The California Supreme Court reversed, finding that Hartford’s “consent-to-assignment” clauses conflicted with Insurance Code section 520. As noted above, section 520 prohibits any policy provision which bars an insured from transferring a claim against the insurer “after a loss has happened.”
The Supreme Court rejected Hartford’s contention that section 520 only applies to first-party property policies. Rather, after an exhaustive review of statutory and case law from California and other jurisdictions, the Supreme Court held that section 520 applies to both first-party property policies and third-party liability policies.
The Supreme Court then held that, with respect to third-party liability policies, a “loss” arises at the time of the “occurrence” that results in injury or damage to the third party, even though the dollar amount of that loss may be unknown and unknowable until much later. Thus, section 520 does not require that the third party claimant obtain a money judgment against, or reach a settlement with, the insured before the insured may assign a claim for the “loss” without the insurer’s consent. Rather, once a third party has sustained a “loss” that is covered by the insured’s policy, and for which the insured may be liable, the insured may assign a claim for the loss without the insurer’s consent.
The Supreme Court held that in light of the above, and given California’s “continuous injury” trigger of coverage, the loss “happened” after a third party’s exposure to asbestos resulted in bodily injury between 1971 and 1986 , when Fluor-1 was insured by Hartford. Therefore, in 2000 , Fluor-1 had the authority, without Hartford’s consent, to assign to Fluor-2 the right to defense and indemnification under the Hartford policies for bodily injury that had occurred during the policy periods. In short, Hartford could not rely on its “consent-to-assignment” clauses to defeat Fluor-2’s claim for coverage.
In reaching this result, the Supreme Court in Fluor expressly overturned its earlier decision in Henkel . The Supreme Court noted that in Henkel , the litigants had not cited, and the Supreme Court had not considered, the effect of section 520 on a “consent-to-assignment” clause. The Supreme Court also observed that the Henkel decision has been widely criticized by other courts and commentators, and clearly represented a minority view. After reviewing the relevant statutory and case law, the Supreme Court determined that Henkel had been incorrectly decided.
Comment
The Fluor decision is in accord with the general principle that an insurer may prohibit an insured from assigning the policy itself to another person before the loss occurs. That is because insurance is considered a personal contract , with the insurer having the right to choose who it will insure.
However, aftera covered loss occurs, the insured may assign to another person the right to recoverfrom the insurer for the loss which has already occurred. This latter situation involves only the payment of a claim for a loss the insurer agreed to cover, and the insured is thus entitled to designate another person to receive the policy proceeds.