Insurance Law

California Supreme Court Holds That California Insurance Code Section 520 Prohibits a Carrier From Denying Coverage Based on “Consent-to-Assignment” Clauses in its Policy if the Loss Happened Prior to the Assignment

In Fluor v. Superior Court, the California Supreme Court overruled its prior decision in Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934 (2003), and held that an insurance company may not utilize a “consent-to-assignment” provision in its policy to deny coverage for a loss that occurred prior to the assignment.

Fluor arose out of approximately 2500 underlying asbestos lawsuits (the “Asbestos Lawsuits”) filed against Fluor Corporation beginning in the 1980s. Fluor’s general liability carriers, led by Hartford Accident & Indemnity Company, defended and indemnified Fluor in the Asbestos Lawsuits for more than 25 years despite the fact that, in 2000, Fluor undertook a “reverse spinoff” through which the portion of its business which gave rise to the Asbestos Lawsuits was transferred to a newly formed subsidiary with the same name (“Fluor 2”).

In 2006, Fluor 2 filed a coverage suit against Hartford relating to issues not addressed in Fluor, and in 2009 Hartford filed a cross-complaint in which it sought a declaration that, because it had not consented to the “reverse spinoff” in 2000, the “consent-to-assignment” clause in each of its policies eliminated coverage for Fluor 2 in the Asbestos Lawsuits. In support of this argument, Hartford relied on Henkel, in which the California Supreme Court held that consent-to-assignment clauses are enforceable so long as the loss at issue has “been reduced to a sum of money due or to become due under the policy.” Henkel, 29 Cal. 4th at 944, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. Fluor 2 responded to this position by arguing that, in Henkel, the California Supreme Court neglected to consider California Insurance Code Section 520 (“Section 520”), [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance], which prohibits an insurer from dishonoring an assignment “after a loss has happened.” The California Court of Appeal held in favor of Hartford, and Fluor 2 appealed to the California Supreme Court.

The California Supreme Court reversed and overturned its decision in Henkel. In so doing, the court held that Section 520’s prohibition on coverage denials based on assignments “after the loss has happened” applies at the moment of the liability-creating occurrence. Because the underlying claimants were allegedly exposed to asbestos prior to the 2000 “reverse spinoff,” the court held that Fluor 2 was entitled to coverage.

Fluor Corp. v. Superior Court, 61 Cal. 4th 1175 (August 20, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

Originally published in California Insurance Law Review - 2015

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