To protect insurers against unknown risks that they did not agree to underwrite, liability insurance policies typically contain "consent-to-assignment" provisions precluding insureds from transferring their rights under those policies absent the insurers' written consent. In Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934 (2003), the California Supreme Court held that such consent-to-assignment provisions are enforceable until a claim has been "reduced to a sum of money due or to become due under the policy." In Fluor Corp. v. Superior Court, — Cal. Rptr. 3d —, 2012 WL 3741979 (Cal. App. Aug. 30, 2012), the California Court of Appeal rejected an insured's claim that Henkel was wrongly decided because the California Supreme Court failed to consider the effect of an 1872 statute voiding consent-to-assignment provisions after "loss" occurs.
Between 1971 and 1986, Hartford Accident & Indemnity Co. (Hartford) issued annual, comprehensive liability insurance policies (Hartford policies) to Fluor Corp. (Fluor-1) containing consent-to-assignment provisions. In 2000, Fluor-1 spun off its engineering, procurement, construction and project management services to a new company (Fluor-2). Fluor-1 also assigned rights under the Hartford policies to Fluor-2. Fluor-1 remained in business after the spinoff, retaining its coal mining and energy operations.
Since 1985, Hartford has been defending Fluor-1 in personal injury lawsuits arising out of alleged exposure to asbestos-containing materials at locations where Fluor-1 performed business. After the spinoff, Hartford also began defending Fluor-2. In 2006, Fluor-2 filed a declaratory judgment action against Hartford to resolve various coverage disputes. Hartford responded with a cross-claim, alleging that it was not obligated to defend or indemnify Fluor-2 for the asbestos lawsuits because Fluor-1 did not seek Hartford's consent before assigning rights under the Hartford policies to Fluor-2. Fluor-2 filed a motion for partial summary judgment, arguing that section 520 of the California Insurance Code (Section 520) — which permits assignments without insurer consent after a "loss" — voided the Hartford policies' consent-to-assignment provisions because the assignment occurred after the plaintiffs in the asbestos lawsuits allegedly had been exposed to asbestos. The trial court denied Fluor-2's motion based on Henkel, and Fluor-2 appealed.
The California Court of Appeal affirmed for two reasons. First, the court acknowledged that Henkel clearly determined when "loss" occurs for purposes of applying consent-to-assignment provisions in liability insurance. Based on that standard, the court concluded that "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."
Second, the court rejected Fluor-2's argument that Section 520 invalidated the Hartford policies' consent-to-assignment provisions. After noting that "statutes are to be construed in the context in which they are written," the court concluded that Section 520 only addressed losses under first-party insurance policies because it was enacted approximately 10 years before the first third-party liability insurance policy was issued. The court also rejected Fluor-2's claim that amendments to Section 520 which post-dated the invention of third-party liability insurance broadened Section 520's scope because section 2 of the Insurance Code expressly states that "[t]he provisions of this code in so far as they are substantially the same as existing statutory provisions relating to the same subject matter shall be construed as restatements and continuations thereof, and not as new enactments."
Before Fluor, insureds already had little room to avoid the implication of consent-to-assignment provisions in California. After Fluor, insureds have even less room. In rejecting Fluor-2's claims and reaffirming the standard set forth in Henkel, the California Court of Appeal confirmed that insurers should be secure in knowing both that they are only obligated to provide coverage for risks they actually agree to, and that an insured cannot unilaterally expand those risks.
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