California Law Prohibits the Assignment of Insurance Coverage to a Successor Company in Violation of a Consent-to- Assignment Clause, Says California Appellate Court

Previous Alerts have discussed decisions relating to whether coverage for pre-acquisition losses may be transferred to a successor company without the insurer’s consent, notwithstanding an anti-assignment clause in the insurance policy. See (citing cases and corresponding Alerts). Case law across jurisdictions is mixed and courts have focused on various issues in this context, including whether the losses have been reduced to a “chose in action,” whether a transfer of insurance rights can occur “by operation of law,” and whether the policy language provides an unambiguous prohibition on transfers. Under California law, as set forth in Henkel Corp. v. Hartford Accident & Indem. Co., 129 Cal. Rptr. 2d 828 (Cal. 2003), anti-assignment or consentto- assignment clauses are valid and enforceable, even with respect to pre-acquisition losses, unless and until a claim is reduced to a sum of money due under the policy (a “chose in action”). In a recent decision, a California appellate court reinforced the precedential authority of Henkel and rejected a policyholder’s argument that coverage could be transferred pursuant to a centuryold state statute. Fluor Corp. v. Superior Court, 2012 WL 3741979 (Cal. Ct. App. Aug. 30, 2012).

In Fluor, the central issue was whether one Fluor entity could assign its rights under several liability policies to another Fluor entity through corporate restructuring, despite a failure to obtain the insurers’ consent in accordance with consent-to-assignment clauses in the policies. The court held that this issue was addressed squarely by Henkel, which remains binding precedent in California. In so ruling, the court rejected the policyholder’s contention that an 1872 state statute controlled the assignability of third-party insurance rights. The court explained that because liability insurance did not exist in 1872, the statute could not provide “controlling power over a medium that had yet to come into being.” Instead, the court reiterated the precedential authority of Henkel in this context, noting 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 [the insurer] owes a relationship.”

Henkel was followed by the Indiana Supreme Court in Travelers Cas. & Sur. Co. v. Unites States Filter Corp., 895 N.E.2d 1172 (Ind. 2008), but rejected by the Ohio Supreme Court in Pilkington North America, Inc. v. Travelers Cas. & Sur. Co., 861 N.E.2d 121 (Ohio 2006).