Yesterday, the California Supreme Court ruled in Fluor Corp. v. Superior Court, No. S205889, 2015 WL4938295 (Cal. 2015), that an insurer is precluded from refusing to honor an insured’s assignment of rights for past losses that occurred during the policy period. Perkins Coie attorneys Koorosh Talieh and Peter Tracey submitted an amicus curiae brief relied upon by the court in its opinion.

The court’s decision overturns previous California law, the California Supreme Court in decision Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934 (2003). Yesterday’s landmark pro-policyholder decision is good news for California companies, particularly those looking to restructure or sell corporate divisions, and those called upon to defend losses that arose prior to a corporate reorganization or sale.

For companies facing liability for alleged environmental damage or personal injuries in California, the Fluor opinion removes a significant barrier to coverage. Under Henkel, companies facing claims for property or environmental damage or personal injury were often barred from relying on insurance purchased by the predecessor company, if the alleged injury occurred prior to certain types of corporate restructuring or sales. The California Supreme Court’s opinion in Fluor eliminates that barrier, allowing companies more flexibility in planning corporate restructuring and more security for successor companies that reorganized before Henkel that insurance assets will be available to address long-tail environmental or product liabilities.

Summary of the Case

Hartford Accident and Indemnity Company (Hartford) issued liability policies to Fluor Corporation (Fluor) from 1971 to 1986. During this policy period, a number of asbestos-related lawsuits were filed against Fluor. Hartford defended the lawsuits and continued to defend asbestos-related lawsuits for a time even after the expiration of the policy period.

In 2000, Fluor restructured into two companies: Massey Energy Company (Massey) and a new Fluor, referred to as Fluor-2. Fluor-2 sought recovery from Hartford, which Hartford denied pursuant to an anti-assignment clause in the policy.

Pursuant to the California Supreme Court’s decision in Henkel, Hartford’s anti-assignment clause operated to void Fluor-2’s interest in the policy until there was a “chose in action,” occurring only when the claims against Fluor had matured to an actual monetary loss due under the policy. During litigation, Fluor identified a California statute enacted in 1872 and cited only once since, which was completely ignored by both the parties and the court in Henkel, which also appeared to directly contradict the ruling in Henkel. The statute, section 520 of the California Insurance Code, voided anti-assignment provisions purporting to limit an insured’s right to transfer its interests where the loss took place before the transfer: “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.”

In litigation between Fluor and Hartford, both the trial court and the Court of Appeal found for Hartford, explaining that they were bound by Henkel. In Fluor, a unanimous California Supreme Court reversed the lower courts and overruled Henkel. The court found that Hartford’s consent was not required for Fluor to transfer its rights to Fluor-2, holding “section 520 bars an insurer from refusing to honor an insured’s assignment of policy coverage regarding injuries that predate the assignment.” As the court concluded, “after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss.”

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