CA Supreme Court Overrules Henkel and New Jersey Appellate Court in Accord – No Insurer Consent Required for Valid Assignment of Insurance Rights After A Loss
The California Supreme Court, overruled its landmark ruling in Henkel v. Hartford, and held that a company can assign its rights under insurance policies to successors without an insurer’s consent after a loss has already occurred.
In the unanimous opinion, the court held that Henkel could not stand because it is contrary to Section 520 of the state’s insurance code, which permits a company to assign its rights under insurance policies to successors without an insurer’s consent post-loss. The court found this to be true even when the dollar amount of the loss remained unknown or undetermined until established later by a judgment or approved settlement. In Henkel, the California Supreme Court held that a “consent to assignment” clause was enforceable and precluded the insured’s transfer of the right to invoke coverage without the insurer’s consent even after the coverage triggering event had occurred.
The policyholder in the case before the California Supreme Court was Fluor Corporation (“Fluor”), a company that performed engineering, procurement and construction operations through various corporate entities and subsidiaries. Beginning in 1971, Hartford Accident and Indemnity Company (“Hartford”) issued comprehensive general liabilities policies to the original Fluor. Each of the Hartford policies included a “consent to assignment” clause reading: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.” Fluor operated at sites were asbestos was allegedly used and, starting in the mid-1980s, began being named as a defendant in asbestos bodily injury suits. Fluor tendered these claims to Hartford and Hartford accepted its coverage obligations and paid millions in defense in indemnity. In the 1980s, Fluor acquired a new company and then ultimately went through a complex restructuring. As a result of these transactions, Fluor assigned its rights under its insurance policies to Fluor-2. Hartford denied coverage to Fluor-2 arguing that it did not consent to the assignment.
In reaching its ruling, the California Supreme Court held that Section 520 of the state’s insurance code applies to third-party liability insurance. The court then focused its analysis on determining when a loss occurs, ultimately finding that a loss is synonymous with the occurrence of a bodily injury and property damage. The court held that the phrase “after a loss has happened” in section 520 should be interpreted as referring to a loss sustained by a third party that is covered by the insured’s policy, and for which the insured may be liable. The court rejected the argument that a loss only occurs once there is a judgment or approved settlement for a certain sum of money. The court examined the public policy behind insurance policies in general – to facilitate economic activity and growth by providing risk management protection– and found that the post-loss rule relating to assignments supports the same public policy.
A similar decision was reached earlier this month by the New Jersey Appellate Court, which, while applying New Jersey law, reversed a trial court’s holding and ruled that an insured can validly assign its rights under insurance policies without the insurer’s consent once a loss has already occurred.
The policyholder in the New Jersey case was Givaudan Corporation, which manufactured flavors, fragrances, and other chemicals. Beginning in the 1960s and through the 1980s, the Givaudan Corporation purchased insurance policies from Travelers Casualty & Surety Co., Allstate Insurance Co., Continental Casualty Co. and others. In 1987, the New Jersey Department of Environmental Protection determined that the Givaudan Corporation’s manufacturing activities contaminated the soil and groundwater with hazardous materials at a Clifton New Jersey site. Ultimately, orders were entered and Givaudan Corporation was required to remediate the damage and pay certain costs. The orders stated that they were binding upon not only the Givaudan Corporation, but also its successor and assigns. In the 1990s, a series of complex corporate mergers, transfers, and re-formations led to the creation of Givaudan Fragrances (“Fragrances”) and Givaudan Flavors (“Flavors”). It is undisputed that Flavors is the successor-by-merger to Givaudan Corporation.
In 2009, after being sued in a third-party contribution action related to the contamination at the Clifton New Jersey site, Fragrances sought a ruling that it was insured under Givaudan Corporation’s policies. Then, in March 2010, Flavors assigned to Fragrances all of Flavor’s insurance rights under the policies at issue. The insurers refused to recognize the assignment and argued that the policies prohibited assignments without their consent, which had not been granted. Fragrances countered that the assignment was valid and binding on the insurers. The lower court held that the assignment was invalid because there was an assignment of more than “a single claim and single insurance rights.”
The primary issue before the appellate court was whether rights under insurance policies may be assigned without consent when such consent is required by the policy language. The appellate court found that the trial court erred, noting that a policyholder can assign insurance rights after a loss had already occurred because there is no transferring of the risk. In this case, any loss that occurred during the relevant policy periods happened before the 2010 assignment and, therefore, the insurers’ consent was not required. The court reasoned that “the purpose behind a no-assignment clause is to protect the insurer from having to provide coverage for a risk different from what the insurer had intended…But if there has been an assignment of the right to collect or to enforce the right to proceed under a policy after a loss has occurred, the insurer’s risk is the same because the liability of the insurer becomes fixed at the time of the loss.” In response to the insurer’s argument that the amount of the loss was not certain during the policy period, the court stated: “Although the precise amount of defendants’ liability may not be known, defendant’s obligation to insure the risk in accordance with their respective policies was not altered by the assignment.” The insurers also argued that a contractual duty to honor its obligations under a policy cannot be triggered until a judgment has been recovered against an insured, but the court found no merit to this argument because the policies at issue were liability policies and not indemnity policies. Fluor Corp. v. The Superior Court of Orange County, S205889 (Cal. Aug. 20, 2015); Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., A-2270-12T4 (N.J. Super. Ct. App. Div. Aug. 12, 2015).