California Court of Appeal Rejects Argument That California Insurance Code Section 520 Trumps Henkel
On August 30, in Fluor Corporation v. Hartford Accident and Indemnity Company, G045579, the California Court of Appeal ruled that California Insurance Code Section 520, an obscure provision that was originally enacted as a statute in 1872 and had never previously been addressed in a judicial opinion, did not trump the California Supreme Court’s 2003 holding in Henkel Corp. v. Hartford Accident & Indem. Co. (“Henkel”) that consent-to-assignment provisions in insurance policies are valid and enforceable. In so ruling, the Court of Appeal upheld the consent-to-assignment provisions contained in Hartford’s policies. Troutman Sanders represents another insurer in the litigation.
The case arose out asbestos related bodily injury suits filed against Fluor entities. The original Fluor Corporation (“Fluor-1”) was created in 1924, and the second Fluor Corporation (“Fluor-2”) was created in 2000 via a corporate restructuring called a reverse spinoff. Fluor-1 transferred its engineering, procurement, construction and project management services to Fluor-2, while Fluor-1 retained coal mining and energy operations and renamed itself Massey Energy Company. Hartford issued 11 policies to Fluor-1 between 1971 and 1986 and was defending both Fluor-1 and Fluor-2. In 2009, Hartford alleged that only Fluor-1 was a named insured and that its policies’ consent-to-assignment provisions prohibited any assignment without its consent. Hartford sought a declaration that it was not obligated to defend or indemnify Fluor-2.
In February 2011, Fluor-2 moved for summary judgment arguing that the consent-to-assignment clauses were void under an 1872 statute, since recodified as California Insurance Code Section 520, which states 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.” Fluor contended that the “loss” takes places once the fortuitous event triggering coverage (typically the occurrence under a liability policy) has happened, at which point the insured is free to assign its rights. Hartford opposed the motion by relying upon the ruling in Henkel that the clauses were valid until the loss matures into a liquidated sum. The trial court declined the opportunity to disregard Henkel based on the 1872 statute. The Court of Appeal denied Fluor-2’s petition for writ of mandate to direct the trial court to grants its motion. In November 2011, the California Supreme Court directed the Court of Appeal to vacate its order denying mandate and to hear the merits of the case.
The Court of Appeal ruled in Hartford’s favor. First, it found that the corporate transactions and consent-to-assignment provisions in Henkel were indistinguishable from the Fluor transactions and Hartford policies. Second, the Court of Appeal rejected Hartford’s argument that Henkel was wrongly decided because the California Supreme Court did not consider Section 520. It noted that when Section 520 was first enacted in 1872, liability insurance did not even exist as a concept. Thus, the concept of “loss” referred to in the statute was for first party property damage and not third-party liability.
The Court of Appeal’s decision, however, did not dispose of the case. The Court of Appeal noted that the parties agreed that there remained at the trial court level a fact intensive inquiry as to whether Fluor-2 legally retained an interest the Hartford policies as a “mere continuation” of Fluor-1 or otherwise.
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