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September 2012

Fluor Corporation v. Hartford Accident & Indemnity Company - Insurance Code Section 520 Does Not Invalidate Consent-To-Assignment Clauses In Occurrence-Based Liability Policies

Consent-To Assignment Clauses Are Generally Valid and Enforceable Until the Time that Claims Have Been Reduced to a Sum of Money Due or to Become Due Under the Policy

(August 30, 2012) ___ Cal. App. ___; 12 C.D.O.S. 10209

The California Court of Appeal, Fourth Appellate District, denied Fluor Corporation’s petition for writ of mandate thus affirming the validity of the consent-to-assignment clauses contained in Fluor’s Hartford Accident & Indemnity Company liability insurance policies.  The Court rejected Fluor’s argument that California Insurance Code section 520 controlled the issue, instead holding the California Supreme Court’s 2003 decision in Henkel v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 was dispositive.

Petitioner Fluor Corporation (“Fluor-2”) was incorporated in the fall of 2000 and the by-product of the reverse spinoff corporate restructuring of a preexisting company incorporated in 1924 (“Fluor-1”).  Under the restructuring, both Fluor-1 and Fluor-2 became independent public companies, with neither having an ownership interest in the other.

Hartford Accident & Indemnity Company (“Hartford”) issued 11 liability policies to Fluor-1 between 1971 and 1986.  Coverage was triggered under these policies after a series of asbestos lawsuits were filed against Fluor entities for materials contained in Fluor-1 sites.  For seven years, Hartford participated in the defense and indemnity of Fluor-1 and Fluor-2.

In 2006, Fluor-2 initiated a coverage action against Hartford to resolve ongoing coverage disputes including, the designation of the applicable policies and interpretation of the “completed operations” clause.  Hartford cross-complained raising a separate coverage dispute, Fluor-1’s breach of the policies’ consent-to-assignment provisions.  The consent-to-assignment provisions provide:

Assignment of interest under this policy shall not bind
the Company until its consent is endorsed hereon.

Hartford’s cross-complaint asserted that Fluor-1 was the only named insured and that neither Fluor-1 nor Fluor-2 ever sought or obtained Hartford's consent to the purported assignment of insurance rights.

Fluor-2 moved for summary adjudication against Hartford’s cross-complaint asserting the consent-to-assignment clauses were not enforceable under Insurance Code section 520, which provides: "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 ... ."  Fluor-2 argued section 520 was a "controlling pronouncement of the law," therefore trumping the California Supreme Court decision in Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, which enforced an identical consent-to-assignment clause under a similar fact pattern.  The trial court denied Fluor-2’s motion.  Fluor-2 sought a writ of mandate.

In denying Fluor-2’s writ, the Court of Appeal rejected Fluor-2’s arguments the Court was bound to apply section 520 over the Henkel decision.  The Court held that, because the statute was adopted in 1872 before liability insurance existed as a concept, the statute could not be interpreted to draw bright rules or make controlling pronouncements about liability insurance, including how “loss” is defined in the context of such policies.  The Court focused on the fundamentals of statutory interpretation stating that legislative intent must be taken in the context of history and practicality.  The Court drew an analogy from case law rejecting the application of statutes addressing fault based liability which were enacted prior to the advent of comparative negligence concepts.  The Court refused to apply the 1872 statute to liability policies, the first of which was not drafted until 1880. 

The Court rejected Fluor-2’s argument that occurrence-based liability policy benefits can be assigned without consent once an “occurrence” takes place on a long-tail claim under section 520’s treatment of “loss.”  The Court reasoned the case law Fluor-2 cited was decided more than a century after section 520 was enacted.  Thus the “loss” discussed in section 520 had no application to occurrence-based policies.  The Court further noted that the “‘occurrence’ test” for consent-to-assignment clauses was rejected by Henkel, which instead focuses on when the insured has sustained a cause of action for breach of the insurance contract.  The Court stated that, as in Henkel, the mere fact that the events giving rise to liability--exposure to asbestos--took place before the reverse spinoff, does not automatically expand the universe of insureds with whom Hartford owes a relationship to include both Fluor-1 and Fluor-2.

The Court determined that Henkel was directly on point and controlling.  In Henkel, the insured created two distinct companies in a reverse spinoff corporate restructuring.  Although Hartford was bound to provide liability insurance coverage to the pre-spinoff company, it relied on the consent-to-assignment clause to deny coverage to the second corporation.  Henkel held that consent-to-assignment clauses are generally valid and enforceable until the time that claims have been reduced to a sum of money due or to become due under the policy.  The Court found the consent-to-assignment clauses in Henkel and Fluor identical and disputed under similar facts.  Therefore, the Court denied Fluor-2’s petition for writ of mandate.

Click here for the opinion.

This opinion is not final.  It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority in California state courts.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com
 

Insurance

Arthur Schwartz



Insurance

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