CANTIL-SAKAUYE, C. J. —
We granted review to consider whether Insurance Code section 520—a statute tracing back to 1872, which was not cited to or considered by this court when we decided Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 [129 Cal.Rptr.2d 828, 62 P.3d 69] (Henkel)—changes our determination in that case regarding the enforceability of "consent to assignment" clauses in third party liability insurance policies. Under Henkel, the consent-to-assignment clause contained in the insurance policy in the present case would permit the insurer, after a loss has occurred, to refuse to honor an insured's assignment of the right to invoke the policy coverage for such third party losses attributable to past time periods for which the insured had paid premiums. We conclude that Insurance Code section 520 dictates a result different from that reached in Henkel, and accordingly we overrule the decision in Henkel to the extent it is inconsistent with the views expressed in the present opinion.
The statute that was not cited to us or considered in Henkel, Insurance Code section 520 (hereafter sometimes section 520),
The Court of Appeal below rejected Fluor-2's contention, concluding that section 520 does not apply to liability insurance. The appellate court further suggested that even assuming the statute applies to such policies, it should be construed to reflect the same rule that we articulated in Henkel and not the view advanced by Fluor-2. Hartford concurs with the appellate court on both points. As explained below, we disagree with the Court of Appeal on both issues. In light of the relevant language and history of section 520, we conclude the statute applies to third party liability insurance, and that,
As further explained below, the rule embodied in section 520 is consistent with the overwhelming majority of cases decided before and since Henkel. The principle reflected in those cases—precluding an insurer, after a loss has occurred, from refusing to honor an insured's assignment of the right to invoke policy coverage for such a loss—has been described as a venerable one, born of experience and practice, facilitating the productive transformation of corporate entities, and thereby fostering economic activity.
For these and related reasons set out below, we will reverse the decision of the Court of Appeal.
For many decades the original Fluor Corporation performed engineering, procurement, and construction (EPC) operations through various corporate entities and subsidiaries. Beginning in 1971, Hartford became one of numerous insurers of the original Fluor, issuing to it 11 "comprehensive general liability" (CGL) policies from mid-1971 to mid-1986.
Each policy covered, among other things, "personal injury liability." In that respect Hartford agreed "[t]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury, sustained by any person and caused by an occurrence." (Underscoring omitted, italics added.) "Occurrence" is defined in the policies as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Underscoring omitted.) As
The original Fluor Corporation operated at sites where asbestos allegedly was used. Beginning in the mid-1980s and continuing until the present, various Fluor entities were named as defendants in numerous lawsuits alleging liability for personal injury caused over many preceding years by exposure to asbestos. Currently, Fluor entities are facing approximately 2,500 such suits in California and elsewhere.
Fluor Corporation tendered these early suits to Hartford and its other liability insurers, all of which subsequently accepted the defense of the claims. Hartford led the defense and settlement of those actions—ultimately expending and paying, over the course of more than 25 years, millions of dollars in the defense and indemnity of those actions.
During the 1980s, the original Fluor Corporation acquired A.T. Massey Coal Company—a mining business outside Fluor's core EPC operations— and A.T. Massey became a subsidiary of Fluor. A.T. Massey's mining operations were conducted and managed independently of Fluor's EPC operations.
In 2000, Fluor decided to refocus on its core EPC businesses, and to separate those operations from the A.T. Massey coal mining operations. Fluor's goal was to "maintain the basic corporate structure, ownership, management, brand recognition and continuing operations of the EPC companies, while preserving the value of A.T. Massey's business [and several long-term mining leases] for shareholders."
Fluor decided to undertake a corporate restructuring and tax-free stock distribution known as a "reverse spinoff." Accordingly, in mid-September 2000, Fluor incorporated a newly formed subsidiary with no prior corporate existence, which the parties (and we as well) refer to as Fluor-2—an entity that would retain the name "Fluor Corporation" so as to acknowledge continuation of the company's long-standing EPC businesses. As reflected in a "Distribution Agreement" dated late November 2000, the original Fluor changed its name to Massey Energy Company. At that same time, the original Fluor transferred all of its EPC-related assets and liabilities to Fluor-2, thereby making Fluor-2 the parent of the EPC subsidiaries. The new Massey
As previously mentioned, such a transaction is known as a reverse spinoff. It is reverse in the sense that, instead of spinning off the subsidiary—A.T. Massey—from the original Fluor, that original corporation took on the name and operations of its subsidiary, and became Massey Energy Company. At the same time, a new company, Fluor-2, was formed, retaining the name and operations of the original Fluor Corporation.
According to Fluor-2, the transition of the original Fluor's EPC operations was seamless and caused no discernable impact on the customers, employees, or creditors of the original and subsequent corporations. After the reverse spinoff, Fluor-2 operated as the continuation of the original Fluor Corporation's EPC business, openly claiming that it was vested with all the assets— including the insurance policies, under which it regularly sought and was afforded defense and indemnification coverage—and obligations (including liability relating to the asbestos suits) arising from the EPC business. Fluor-2 asserts that in conducting the same EPC business under the Fluor Corporation name, it was treated as the accounting successor to the original (pre-spinoff) Fluor for financial reporting purposes. Fluor-2 also used the same stock symbol (FLR), was owned by the same shareholders, was managed by the same executive team, was headquartered in the same location, and retained all of the books, licenses, permits, contracts and agreements associated with the original Fluor Corporation's EPC business.
In May 2001, approximately six months after the reverse spinoff, Fluor-2 sent Hartford a letter providing copies of its annual report and a November 2000 letter and "Proxy Statement/Information Statement" to shareholders
It is undisputed that after the reverse spinoff, and consistent with the open-ended nature of "occurrence-based" liability insurance policies (which provide coverage for claims stemming from events occurring during the policy period, even if the claim is presented long after the policy expires; see, e.g., Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 664 [42 Cal.Rptr.2d 324, 913 P.2d 878] (Montrose)), Hartford continued for approximately seven years to defend Fluor-2 against claims triggered by occurrences during the terms of the original Fluor's long-expired policies, and provided defense and indemnity payments concerning those claims on Fluor-2's behalf. Although Hartford had, between 2001 and 2008, occasionally disclaimed defense and indemnification coverage concerning specific companies or subsidiaries that it asserted did not qualify as insureds under its policies, during this period Hartford raised no objection based on the reverse spinoff to coverage for third party liability claims presented by Fluor-2. From 2002 until 2008, during the same time it defended the asbestos suits and provided indemnification, well after the reverse spinoff, Hartford continued to collect from Fluor-2, as the claimant, nearly $5 million in "retrospective premiums."
Although there had been no dispute regarding Hartford's general duty to defend and indemnify with regard to the asbestos suits, various ancillary questions arose concerning the scope of Hartford's coverage obligations under the liability policies. As a result, Fluor-2, in an action that raised numerous issues not before us now, sued Hartford in February 2006, seeking declaratory relief on behalf of itself and its insured subsidiaries. In response, Hartford filed a second amended cross-complaint in mid-2009, presenting for
In early 2011, Fluor-2 moved for summary adjudication of Hartford's cross-complaint. Fluor-2 argued that Hartford's claims failed as a matter of law because Insurance Code section 520 by its terms bars enforcement of the policies' consent-to-assignment clauses "after a loss has happened." Fluor-2 asserted the asbestos suits allege that the continuing exposures leading to bodily injury occurred during the terms of the various policies (between 1971 and 1986); the "loss" triggering Hartford's duty to defend and indemnify had already happened; thus, pursuant to section 520, claims concerning insurance
Hartford opposed the summary adjudication motion based on this court's 2003 decision in Henkel, supra, 29 Cal.4th 934. It argued that the superior court was "duty-bound to apply Henkel, not [section] 520" of the Insurance Code.
The trial court agreed with Hartford, declining to consider or apply Insurance Code section 520 on the ground that our decision in Henkel, supra, 29 Cal.4th 934, had definitively addressed and resolved the enforceability of the same consent-to-assignment clause. It denied Fluor-2's motion for summary adjudication. Fluor-2 filed a petition for a writ of mandate in the Court of Appeal, seeking to determine whether section 520 or Henkel controls in this circumstance. The Court of Appeal invited Hartford to submit an informal response. (See Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171 [203 Cal.Rptr. 626, 681 P.2d 893].) Shortly thereafter the Court of Appeal summarily denied the writ petition.
Fluor-2 then sought review in this court. We granted the petition and transferred to the Court of Appeal with directions to vacate its summary denial and to issue an order to show cause to respondent superior court. The Court of Appeal requested full briefing from Fluor-2 and Hartford as real party in interest and heard oral argument. Thereafter, the Court of Appeal issued a decision denying Fluor-2's petition for writ of mandate.
In 1979 an insured entity, Amchem—which had both a metalworking chemical business and an agricultural chemical business—spun off its metalworking line into a separate, newly created corporation, which we called Amchem No. 2. That subsequent corporation assumed both the assets and the liabilities of the original Amchem insofar as they related to metalworking activities. A year later, Amchem No. 2 was acquired by and merged into Henkel Corporation. Subsequently, the original Amchem, which continued its agricultural chemical business, was acquired by another entity, which in turn was later acquired by, and merged into, yet another corporation. (Henkel, supra, 29 Cal.4th at pp. 938-939.)
After settling with the injured workers, Henkel Corporation sued the insurers of the original Amchem, again including Hartford, asserting that it had acquired a right to coverage under those policies. Because the contract of sale did not expressly purport to assign the right to invoke coverage under the liability policies, Henkel argued first and primarily that such insurance coverage had transferred to it automatically by operation of law. For that proposition, Henkel Corporation relied on a federal decision, Northern Ins. Co. of New York v. Allied Mutual Ins. (9th Cir. 1992) 955 F.2d 1353 (Northern Insurance).
The trial court ruled against Henkel Corporation, but the appellate court reversed. Finding Northern Insurance persuasive, it held that whether or not the parties had by contract assigned the rights to invoke coverage under the liability policies along with the liabilities, Henkel Corporation, as the successor entity, had acquired by operation of law both the liabilities of the predecessor and the predecessor's right to invoke coverage related to those liabilities. The court also held that the consent-to-assignment clause in the
We reversed. (Henkel, supra, 29 Cal.4th at pp. 943-945.) Addressing the first issue—whether, in the context of a contract that transferred liabilities and assets, but did not specify that rights to assert insurance claims concerning those liabilities were among the assigned assets, rights to invoke that insurance coverage were nevertheless transferred by operation of law—we noted that two decisions of California Courts of Appeal disagreed with Northern Insurance on that point.
We next addressed Henkel Corporation's alternative argument that the contract had assigned the right to invoke coverage for losses that had already occurred—and that the consent-to-assignment clause in the policies was unenforceable. We rejected the argument, concluding that whether or not the parties had effectuated such a contractual transfer, "any such assignment would be invalid because it lacked the insurer's consent." (Henkel, supra, 29 Cal.4th at p. 943, italics added.)
As noted earlier, the clause in Henkel was identical to that in this case, barring "`[a]ssignment of interest under this policy'" absent the insurer's consent. (Henkel, supra, 29 Cal.4th at p. 943.) Alluding to decisions enforcing similar "consent-to-assignment" clauses in a different context—purported substitution of one insured for another before a loss had occurred— we observed in Henkel that "[s]uch clauses are generally valid and enforceable." (Ibid., citing Bergson v. Builders' Ins. Co. (1869) 38 Cal. 541, 545 (Bergson) [holding such a clause enforceable against assignment of an insurance policy itself, but expressing doubt that such a clause could be enforced regarding assignment, after a loss had occurred, of rights to invoke coverage] and Greco v. Oregon Mut. Fire Ins. Co. (1961) 191 Cal.App.2d 674, 682 [12 Cal.Rptr. 802] (Greco) [holding such a clause enforceable regarding an attempt to substitute one insured for another, by assignment of a policy before
Consistent with these just-cited cases, Henkel Corporation argued that the right to invoke coverage "under an occurrence-based liability policy . . . can be assigned without consent once the event giving rise to liability has occurred." (Henkel, supra, 29 Cal.4th at p. 944, italics added.) It contended that under the circumstances presented, there had in fact been an actual, and effective, postloss assignment of the right to invoke coverage. We rejected that view, concluding that any purported contractual assignment had been ineffective because the matter had not matured into a "chose in action." (Ibid.)
We began our analysis by citing cases upholding assignment of a chose in action, and we highlighted a statement in one of those cases: "`[A] provision in a contract . . . against assignment does not preclude the assignment of money due or to become due under the contract . . .'" (Henkel, supra, 29 Cal.4th at p. 944, italics added, quoting Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335, 339-340 [182 P.2d 182].) From this observation about a circumstance in which a consent-to-assignment clause would not preclude assignment, we extrapolated a firm rule about what is required before a claim for insurance coverage may be assigned notwithstanding a consent-to-assignment clause: We held that there must first exist a fixed sum of money due or to become due. And yet, we observed, the "claims" at issue in the case before us "had not been reduced to a sum of money due or to become due under the policy." (Henkel, supra, at p. 944.)
In a dissenting opinion, Justice Moreno argued that under established common law, "`assignment is valid following occurrence of the loss insured against. . .'" because such a claim is "`regarded as [a] chose in action rather than transfer of [an] actual policy.'" (Henkel, supra, 29 Cal.4th at p. 946 (dis. opn. of Moreno, J.), quoting 2 Couch on Insurance (3d ed. 1997) § 34:25, p. 34-21.)
In the appellate court below, Fluor-2 observed that Henkel was decided without considering section 520—which, as discussed post, part III.B., by its terms bars enforcement of consent-to-assignment clauses "after a loss has
The Court of Appeal began its discussion of the statute by contrasting "first party" insurance policies
The Court of Appeal wrote: "Insurance Code section 520 was first enacted in 1872 as Civil Code section 2599. The provision was recodified verbatim as
The appellate court acknowledged Fluor-2's arguments that when the Legislature recodified a version of the original 1872 statute in 1935 in the course of creating the Insurance Code, and then amended that same section in 1947, the effect was to create a general rule that covered both first party insurance and third party liability insurance. The court dismissed both points. It concluded that enactment of the Insurance Code in 1935 "was not intended to effectuate a substantive change in the law"—in other words, it was not intended to acknowledge or reflect any expansion of the predecessor statute's reach to additionally cover third party liability insurance.
The Court of Appeal concluded: "Here is the nub. The 1872 Legislature drew no bright lines and made no controlling pronouncements about liability insurance, or about how `loss' in the context of such policies is to be defined. We see nothing in Insurance Code section 520 or in Henkel to support Fluor-2's assumption that the Supreme Court would have reached a different result had the parties in that appeal briefed or argued the statute's applicability. In the absence of an express legislative directive, stare decisis controls. [¶] If Fluor-2 wants to recast the 1872 statute to account for the evolution of modern liability insurance policies . . . it should direct its attention to the Legislature. . . . If the rule of law in Henkel is to be vitiated, the Legislature in the 21st century, not the Legislature in the 19th century, must do it."
Fluor-2 again filed a petition for review with this court, seeking to resolve the parties' dispute concerning the applicability of section 520. We granted the petition.
As recounted above, the Court of Appeal found that section 520 applies only in the context of first party insurance—not to cases, like the present one, involving third party liability insurance. On this key threshold question, we disagree with the appellate court. Although it is unlikely that the Legislature contemplated liability insurance in 1872 or for years thereafter,
The California Code Commission was established in 1929 to reconfigure the state's existing four codes (the Civ., Crim. and Pol. Codes and the Code Civ. Proc.), and existing general statute laws, into newly formulated discrete codes—including an Insurance Code. (Stats. 1929, ch. 750, p. 1427.) The preface to the proposed Insurance Code explained that "the effort has been primarily to recognize the existing situation in the insurance business by first setting forth the provisions governing the law and business as a whole, [and] thereafter segregating provisions governing particular classes of insurance and insurers . . . ." (Proposed Ins. Code (Sept. 20, 1934) p. v, italics added.)
Although the appellate court below downplayed the scope and extent of the 1935 Legislature's creation of the Insurance Code, as explained below it is
These and other extensive developments in the landscape of insurance law were in turn reflected in the code commission's—and subsequently, the Legislature's—treatment of the new Insurance Code. Both entities reevaluated key statutory provisions, revised some, eliminated some, and added others under the code's newly organized division 1, which, as noted, sets out "General Rules Governing Insurance" and includes section 520, the statute here in question.
Some of the changes made by the Legislature and reflecting general rules of liability insurance include the following revisions: (1) The statute that had
When viewed together with the other developments and changes described above, it appears that the Legislature in 1935 intended section 520 would apply generally to all classes of insurance—which, as noted, it had recognized, in then newly enacted sections 100 and 108, specifically included liability insurance.
The 1947 amendment to Insurance Code section 520, the only amendment to date, provides further evidence that the statute applies to third party liability insurance. By 1947, liability insurance had become even more common,
In light of this history, as amicus curiae Insurance Commissioner observes, the Legislature's exemption of life and disability insurance (see ante, fn. 28)—but not liability insurance—from the reach of section 520 is significant because "it confirms that the Legislature viewed section 520 as a `General Rule' covering all classes of insurance, even those not specifically identified by the 1872 Legislature."
In determining the proper interpretation of Insurance Code section 520 in the context of liability insurance, we begin with the statutory language. "`As in any case involving statutory interpretation, our fundamental task here is to determine the Legislature's intent so as to effectuate the law's purpose.' [Citation.] `We begin with the plain language of the statute, affording the words of the provision their ordinary and usual meaning and viewing them in their statutory context, because the language employed in the Legislature's enactment generally is the most reliable indicator of legislative intent.' [Citations.] The plain meaning controls if there is no ambiguity in the statutory language. [Citation.] If, however, `the statutory language may reasonably be given more than one interpretation, "`"courts may consider various extrinsic aids, including the purpose of the statute, the evils to be remedied, the legislative history, public policy, and the statutory scheme encompassing the statute."'"' [Citation.]" (People v. Cornett (2012) 53 Cal.4th 1261, 1265 [139 Cal.Rptr.3d 837, 274 P.3d 456].)
Section 520 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 except as otherwise provided in Article 2 of Chapter 1 of Part 2 of Division 2 of this code." As alluded to earlier, the exception referred to in the concluding clause of section 520 concerns life insurance and disability insurance, neither of which is involved in this case. Consequently, the relevant language of section 520 provides that an agreement not to transfer a claim of an insured against an insurer "after a loss has happened, is void if made before the loss." The controversy at this stage of the analysis concerns the meaning of the phrase "after a loss has happened" as used in the statute.
On the other hand, the statutory phrase "after the loss has happened" could refer, as Hartford asserts it should, not to the event leading to the underlying bodily injury, but instead to a much later point in time—to the period after the insured has incurred a direct loss by virtue of the entry of a judgment, or finalization of a settlement, fixing a sum of money due on a claim against the insured by a person or entity injured by the insured. Indeed, Hartford and its amicus curiae Stonewall Insurance Company argue that in this sense the common law, section 520, and Henkel are all consistent—i.e., they assertedly all condition assignment of claims for coverage under a third party liability policy without the insurer's consent on there first being a fixed sum of money due from the insured to the injured third party.
As a matter of linguistics, either interpretation of the phrase "after the loss has happened" is not unreasonable. In order to decide which is the most reasonable interpretation, we examine the legislative history of section 520 to determine whether it sheds light on the purpose of the statute and on which interpretation of the term will best effectuate that purpose.
We begin by observing that the sole published opinion citing section 520 addressed the provision in the context of first party insurance only (Gillis v. Sun Ins. Office, Ltd. (1965) 238 Cal.App.2d 408, 415 [47 Cal.Rptr. 868]), and did not consider what the provision means by the word "loss." Secondary sources have, since 1924, cited, quoted and paraphrased section 520, both in its predecessor and current form, emphasizing its rule that after a loss, an insured's claim regarding insurance benefits may be transferred without the
In advancing their competing views concerning the provision's language, the parties and their amici curiae rely initially on the history of the predecessor statute—Civil Code former section 2599—enacted in 1872, and old decisions from New York and California, relating to and preceding that statute, addressing assignability of rights to invoke coverage in the context of first party insurance. We turn first to these sources.
We begin by focusing on adoption of the Civil Code in 1872. The Legislature had before it a report prepared in 1871 by the California Code Commission, Revised Laws of the State of California (hereafter Proposed Revised Laws (1871)). The commission prefaced its recommendations by observing that the majority of California's existing statutes "have been taken, from time to time, from sister States, and mostly from New York." (Proposed Revised Laws (1871), supra, at p. iv.) The commission proposed to continue borrowing, this time from a draft New York Civil Code, widely known as the Field Code.
Our Legislature adopted the proposed Civil Code as recommended, including this provision as section 2599. (Civ. Code (1872) p. 427.) Immediately thereafter, when the commissioners published an annotated version of the new Civil Code, they modified the Field Code's note quoted above, and presented it as their own annotation. The case citations remained the same, but the closing text was revised slightly to read: "Clearly, if this was not the rule of the law prior to the adoption of this Code it ought to have been; such a covenant or agreement in a policy is grossly oppressive." (Code commrs. note foll. 2 Ann. Civ. Code, § 2599 (1st ed. 1872, Haymond & Burch, commrs.-annotators) p. 152, italics added (Haymond and Burch).) We now review the cited first party insurance cases preceding the 1872 statute.
After a fire occurred, the insureds, without obtaining the consent of the insurer, assigned to the plaintiff their right to assert a claim relating to coverage. (Goit v. National Protection Ins. Co. (N.Y.Gen.Term 1855) 25 Barb. 189, 190 (Goit).) This violated the strict terms of the contract—and indeed, purported to nullify coverage under the policy, which provided that "`in case of assignment without the consent of the company first obtained, in writing, whether [(1)] of the whole policy , . . . , or [(2)] of any claim against said company [(the insurer)] by virtue thereof, either prior or subsequent to loss or damage of the property . . . , the liability of the company . . . should henceforth cease.'" (Id., at pp. 190-191, first italics added.)
The court in Goit held that the insurance policy's prohibition of the first type of assignment—"of the whole policy"—was valid and enforceable. (Goit, supra, 25 Barb. at p. 193.) The court explained: "The contract of insurance is one eminently of personal confidence, and the character of the insured forms an important element among the inducements of the underwriters to assume the risk; and hence the provision against assignments of the policy during the continuance of the risk is highly beneficial to the insurer." (Ibid., italics added.) The court then observed, however, that the policy clause at issue
"There is certainly not the same reason for prohibiting an assignment after a loss, as before. After the loss the confidential relation of insurer and insured no longer exists, but a new relation has arisen out of it, to wit, that of debtor and creditor; and it is difficult to see any reason connected either with public policy or the proper rights of the former, why the latter should not be permitted to deal with and concerning this right in action as he is permitted to do in respect to any other absolute right, and transfer the same in payment of debts or to meet the other necessities of business." (Goit, supra, 25 Barb. at pp. 193-194, italics added.)
In Courtney v. New York City Ins. Co. (N.Y.Gen.Term 1858) 28 Barb. 116 (Courtney), another first party insurance case, following the destruction of personal property by fire, the insured "assigned the claim . . . to the plaintiff by deed duly executed. . . ." (Id., at p. 118.) The plaintiff sought to recover the policy's benefits from the insurer, who refused to pay, relying on the policy's clause precluding assignment, either before or after a loss. (Id., at p. 117.)
The court wrote: "Whenever the loss occurs and the company have notice and are furnished with the preliminary proofs required by the conditions, the amount of the loss becomes, by force of the contract, a debt payable to the insured presently or at the time appointed in the policy. . . . Whenever the right of property in the debt or damages attaches and becomes perfect, all the incidents of property attach also, including the power of sale and disposition. . . . [T]his power of sale and disposition is inseparable from the absolute right of property, and any condition of the kind attached to the sale of real or personal estate, . . . is repugnant and absolutely void." (Courtney, supra, 28 Barb. 118, italics added.) Turning to the distinction drawn by the court in Goit concerning the two types of assignment scenarios, the court explained: "It is the policy of insurance that is not assignable either before or after a loss, without the consent of the insurer. . . . The language of the [consent-to-assignment] condition can have full effect and receive a sensible construction without destroying or impairing the right to recover a debt already accrued. . . . The liability of the company to the holder of the policy is of two kinds, entirely different, and capable of separation; [(1)] continued liability as assurers, and [(2)] liability to pay damages which have accrued,
In the third decision cited in the contemporaneous 1872 annotation concerning the predecessor to Insurance Code section 520, Dey v. Poughkeepsie Mutual Ins. Co. (N.Y.Gen.Term 1857) 23 Barb. 623 (Dey), the court enforced, in circumstances similar to the other cases just discussed, a policy provision barring any assignment without consent. (Id., at pp. 626-627.) As the annotations to both the draft Field Code and the corresponding California Civil Code provision observed, this minority holding—allowing an insurer to veto assignment, after a loss, of a right to invoke coverage under such policies—was "contrary" to the rule expressed in Goit and Courtney, the draft Field Code, and the enacted language of the California Civil Code provision that preceded section 520.
In Bergson, supra, 38 Cal. 541, 544-545, an 1869 first party insurance case that was not cited in the California Code Commissioners' annotation concerning the predecessor to section 520, the insured, prior to occurrence of any loss, made an "assignment of a contingent right to the money" under a fire insurance policy to the plaintiff, Bergson. Without citing Goit or Courtney, the court nevertheless drew the same distinction articulated in those cases between (1) assigning the contract of first party fire insurance itself with regard to continuing coverage for future events—thereby purporting to substitute one insured for another; and (2) assigning the right to assert a claim for coverage under a first party policy after a loss. The court explained that the first type of transfer could not be undertaken without the insurer's consent, but with regard to the second type, the court found it "doubtful" that an insurer could "restrain . . . assignment." (Bergson, supra, at p. 543.) The court observed in this regard: "The insurer has a right to know, and an interest in knowing, for whom he stands as insurer. He may be willing to insure one person and unwilling to insure another, while the owner of a particular parcel of property. He may have confidence in the honesty and prudence of the one in protecting the property and thereby lessening the risk, and may have no confidence in the other. But these considerations have no application to the assignee of [a claim for coverage under] the policy, for it
Fluor-2 and its amici curiae
By contrast, Hartford and especially its amicus curiae Stonewall Insurance Company (Stonewall)
We note that both Goit, supra, 25 Barb. 187, and Courtney, supra, 28 Barb. 116, explicitly recognized and sought to protect the insured's need to assign rights to assert first party claims for coverage very soon after manifestation of the loss or damage, and implicitly rejected the notion that assignment must await litigation establishing liability or imposition of a judgment.
Merely because the phrase "after the loss has happened" has a certain accepted meaning in the first party context, however, does not necessarily indicate that the phrase has the same meaning in the third party liability insurance context. We ultimately conclude that the phrase does have the same meaning in both contexts—but, as explained below, we arrive at that conclusion only after considering the specific circumstances of third party liability insurance in order to determine which interpretation of the statutory language, "after the loss has happened," best serves the statutory purpose in that context.
Soon after third party liability insurance began to be employed in the years following the late 1880s (see ante, fn. 19), there emerged a body of cases addressing key questions specific to that type of insurance that shed light on the issue before us. As we shall see, the common theme animating these pre-1935 cases and statutes was to enable, by various means, indemnity recovery by insureds or their assignees. We first review two developments: cases standing for the proposition that in the liability insurance context, an insured's right to indemnity accrues at the time of the injury or damage; and cases standing for the proposition that an insured may assign its post loss insurance coverage rights.
The right to coverage under third party liability insurance includes the right to indemnity. The first set of early liability insurance cases confronted the question of when a liability insurer's obligation arises under a policy to indemnify its insured for loss. (1) Did that duty arise when personal injury or property damage to a third party that was covered by the policy occurred during the policy term, even if the insured had not yet been held liable and, indeed, even if the dollar amount of the liability had not been ascertained until later? Or (2) did the insurer's indemnification duty arise only after the insured incurred an actual monetary loss through a judgment or settlement? These cases answered: the former.
For example, in American Casualty Ins. Company's Case (1896) 82 Md. 535 [34 A. 778] (American Casualty), the high court of Maryland addressed consolidated appeals concerning the insolvency of a liability insurer, American Casualty, which had provided coverage against losses by railways arising
In the late 19th century, the proposition that a consent-to-assignment clause is void and unenforceable with respect to postloss assignment of rights to invoke coverage (see, ante, pt. III.B.1.) was quickly and widely embraced as the controlling rule for first party insurance policies.
In Maryland Casualty Co. of Baltimore, Maryland v. Omaha Electric Light & Power Co. (8th Cir. 1907) 157 F. 514 (Maryland Casualty), the insured, an electric company, held a liability policy covering injury to its employees. The policy contained a consent-to-assignment clause. An injury to an employee occurred, resulting in death. The employee's estate sued the employer and obtained a judgment. The employer, through a reorganization, assigned its assets and transferred its liabilities to a newly incorporated entity, Omaha Electric. After the employee's judgment against the original employer insured became final on appeal to the state supreme court, Omaha Electric, as successor, paid it and sought reimbursement from insurer Maryland Casualty. The insurer denied reimbursement on various grounds, including that (1) it had contracted with only the original employer as insured, and not with Omaha Electric, the assignee; and (2) it had not consented to the assignment. (Id., at p. 515.)
By 1935, when section 520 was enacted, the holding in Maryland Casualty had been explicitly followed in various other liability insurance decisions.
Again, although these cases shed useful light, we acknowledge that they involved assignment of an insured's right to obtain the benefits of the insurance policy after a judgment had been entered against the insured. Accordingly, these cases did not have occasion to address the issue presented by this case, namely whether the consent-to-assignment clause could validly be applied to preclude the insured from assigning its rights under the policy after the third party had been injured but prior to a judgment or an otherwise matured claim. Such a factual and legal scenario was, however, presented in the next and most relevant out-of-state decision.
Ocean Accident & Guarantee Corp. v. Southwestern Bell Telephone Co. (8th Cir. 1939) 100 F.2d 441 (Ocean Accident), filed just a few years after enactment of section 520 in 1935—and well before the Legislature's amendment of section 520 in 1947—involved, as alleged here, assignment by a predecessor company to a successor company of claims regarding coverage provided by a third party liability policy. The Kansas City Telephone Company (Kansas Telephone) sold all of its property, and broadly assigned its assets, rights and liabilities, to Southwestern Bell Telephone Company (Southwestern Bell).
One year prior to the sale and assignment, and while the policy was in effect, three employees of the seller, Kansas Telephone, had been injured in separate incidents. After the sale and assignment to Southwestern Bell, the three separately sued that successor company for personal injuries. As in the present case, the suits were commenced both well after the assignment occurred (there, by two to five years)—and long after the liability insurance policy had expired. Indeed, prior to the assignment, notice had been given to the insurer with regard to only one of the three matters, and, again analogously to the present case, no party to the transaction was even aware of the other two incidents. (Ocean Accident, supra, 100 F.2d at p. 443.)
After receiving notice of the suits, the insurer asserted that it had contracted with Kansas Telephone, not with the successor Southwestern Bell, and it refused to defend. (Ocean Accident, supra, 100 F.2d at p. 443.) Accordingly, the successor itself defended those suits, and then sued the insurer to "recover as damages the expenses so incurred." (Ibid.) The federal court, applying Missouri law, held that the successor corporation "stands in the shoes" of the prior corporation and was entitled to invoke coverage "under the policy as would its assignor." (Id., at p. 445.)
In the course of its opinion, the appellate court rejected two arguments advanced by the insurer. First, in response to the insurer's contention that it had issued a policy to Kansas Telephone only and that rights to invoke
Second, in rejecting the insurer's assertion that coverage under its liability policy was not assignable "because the policy expressly prohibits an assignment without . . . consent" (Ocean Accident, supra, 100 F.2d at p. 445), the Ocean Accident court relied on Maryland Casualty, supra, 157 F. 514, and explained: "The principle on which the courts hold that an assignment of a right under a policy prohibiting assignment may be made is that such an assignment is not the assignment of the policy itself (because the parties have contracted otherwise), but it is the assignment of a claim, or debt, or chose in action." (Ocean Accident, supra, at p. 446, italics added.) The court then addressed the insurer's observation that Maryland Casualty was distinguishable because in that case, "the liability had been liquidated and reduced to judgment before the assignment was made." (Ocean Accident, supra, at p. 446.) The court found that factor irrelevant, explaining: "The question to be determined is when the `cause of action' arose, whether at the time the accident occurred resulting in damage or after the amount of the loss was liquidated and reduced to judgment against the insured. If it arose at the time of the accident it was assignable notwithstanding the prohibition in the policy against assignments, otherwise it was not." (Ibid., italics added.)
The court acknowledged the insurer's argument that "the insured sustained no loss at the time the injury to the employee occurred." (Ocean Accident, supra, 100 F.2d at p. 446.) But the court rejected that view, observing that pursuant to the applicable rule, which it found "supported by sound reason and apparently by the weight of authority, . . . under a liability policy such as the one under consideration, the liability, the loss and the cause of action arise simultaneously with the happening of the accidental injury to the employee." (Ibid., italics added.) In support, the federal appellate court cited and described some of the "accrual" cases discussed ante, part III.B.2.a. (100 F.2d at pp. 446-447.) It concluded that the successor corporation had properly been conveyed "the right to the protection of the defendant [insurer] against liability on account of injuries to [the three employees] occurring before the date of the conveyance but while the policy was in force; and that such right was an assignable chose in action notwithstanding the prohibition clause in the policy." (Id., at p. 447.)
Ocean Accident was quickly recognized as a leading case. It was highlighted and analyzed just five months later in a prominent law review (Recent
Later in 1939, its national influence was confirmed when it was the subject of an annotation, Assignment by assured of policy of indemnity or liability insurance, or of rights thereunder (1939) 122 A.L.R. 144. After setting out the decision in full, the article articulated its understanding of the prevailing rules: Although a consent-to-assignment clause is enforceable before a loss occurs, "[a] different situation arises and a different rule prevails as to assignments made by the assured after the event has occurred by which liability under the policy is fastened upon the insurer. . . . [I]n such cases the assignment, even though it may purport to be of the policy, is in reality, as stated in Ocean [Accident] . . . an assignment of a claim under, or a right of action on, the policy. Under these circumstances the reasons for regarding the contract as personal have ceased to operate, and it is generally held or assumed that the policy, or rights thereunder, may be assigned, either with or without the consent of the insurer." (Id., at pp. 145-146, italics added.) Moreover, and significantly, the article stated: "Just what event it is that fixes liability under any particular policy depends of course upon the terms of the policy and the construction given them by the court. In general . . . , as pointed out in Ocean Acc[ident] . . . , the liability of the insurer, and therefore the right of the assured to assign, arises immediately upon the happening of the accident or other occurrence for which the assured is, or is claimed to be, liable." (Id., at p. 146, italics added.)
Thereafter, in 1942, Ocean Accident was quoted at length and cited in a leading insurance treatise, 7 Appleman, Insurance Law and Practice (1942) section 4269, pages 45-46. A few years later, our Court of Appeal relied on Ocean Accident for the proposition that "after a loss has arisen liability is fastened upon the insurer and any right of the insured as a result of the loss may be assigned with or without the consent of the insurer." (Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229, 232 [175 P.2d 63] [approving assignment of a claim under a first party fire insurance policy].) As this history shows, by the time the Legislature returned its attention to section 520 in 1947,
The rule of Ocean Accident—voiding consent clauses as applied to postloss assignment of rights to invoke liability insurance coverage, and imposing no requirement that the matter first be reduced to a sum of money due—continues to be reflected, either explicitly or implicitly, in decisions of the overwhelming majority of courts that have addressed these or similar issues.
For many decades after Ocean Accident, courts, parties to transactions, and litigants generally assumed the legal propriety of assigning to a successor, in connection with a transfer of assets and liabilities, the right to invoke insurance coverage for losses that had previously occurred—even if those losses were not determined with precision or indeed known, let alone reduced to a judgment. (See, e.g., May, Successor's Rights to Insurance Coverage for Predecessors' Preacquisition Activities: Recent Developments (2005) 40 Tort Trial & Ins. Prac. L.J. 911, 912.) In large part, the pervasiveness of this practice appears attributable to the widespread acceptance of and deference to Ocean Accident, and the prior cases on which it relied. Indeed, in the decades after Ocean Accident, and until the mid-1980s, "courts routinely allowed whoever ended up with the tort liability to enjoy the benefit of insurance coverage that would have applied before the later corporate transaction took place." (1 Stempel on Insurance Contracts (3d ed. 2014) at p. 3-128 & fn. 409.4, and cited cases.)
More recent experience reveals that Ocean Accident's influence has continued and indeed grown. (See Gopher Oil Co. v. American Hardware Mutual Ins. Co. (Minn.Ct.App. 1999) 588 N.W.2d 756, 763-764 [citing and relying on Ocean Accident in holding that "loss occurs at the time of contamination. . . "; agreeing that "[a]n assignment of a loss does not expand the risk to cover other activities; it only allows a change in the identity of the insured to reconnect the policy's coverage to the insured loss"; observing that "[t]he great majority of courts follow this distinction between risk and loss and allow an insured to assign a loss" despite a standard consent-to-assignment clause; and commenting that doing otherwise would provide "an insurer . . . the windfall of not having to insure an occurrence that it received premiums for covering"]; In re ACandS, Inc. (Bankr. D.Del. 2004) 311 B.R. 36, 41 [permitting assignment of asbestos-related bodily injury claims "`because an insured's right to proceeds vests at the time of the loss giving rise to the insured's liability'"]; Elliott v. Liberty Mutual Ins. Co. (N.D. Ohio 2006) 434 F.Supp.2d 483, 491 [allowing assignment even though a claim had not been reduced to a money judgment and observing that numerous other courts
We are aware of only one out-of-state exception to this line of authority, and that decision has not been followed by any other jurisdiction.
The fundamental premise underlying Ocean Accident and the cases that have built upon it—that an insured loss occurs or happens at the time of injury during the policy period, and well before there might be any judgment or approved settlement for a sum of money—also has been recognized in our own cases addressing related aspects of "long tail" insurance coverage. Although these cases did not concern assignability of a right to invoke policy coverage, the analysis they employed is consistent with the understanding of loss articulated in the overwhelming majority approach described above.
In Montrose, supra, 10 Cal.4th 645, a chemical company was sued for personal injuries and property damage. The company had been covered by multiple insurers for numerous consecutive policy periods over many years. One of the later insurers asserted that the precipitating acts giving rise to injury or damage had occurred before its policies had been issued, and accordingly argued that its duty to defend had not been triggered during the period of its own policy. Addressing the point in time at which "injury or damage" that is continuous and occurs during successive policy periods triggers the insurer's duty to defend under occurrence-based CGL policies, we explained that the insurer's duty arises when there is a potential for coverage, and even though there ultimately may be no duty to indemnify. (Id., at p. 659, fn. 9.) We considered four possible trigger-of-coverage periods: (1) the date of initial exposure to the injury-causing event or conditions; (2) the date that an injury "`in fact'" occurred; (3) the date that injury became manifest; and, the broadest category, (4) "over the continuous period from exposure through manifestation and beyond." (Id., at pp. 673-674, italics added.) We rejected the insurer's position that manifestation (the latest possible trigger time) should be used, and determined that the fourth option was the most appropriate under the words of the CGL policies and the relevant majority-rule cases. (Id., at p. 686.) Accordingly, we concluded that bodily injury and property damage that is "continuous or progressively deteriorating" (id., at p. 654) throughout successive policy periods is covered by all insurers' policies in effect during those periods even though, we acknowledged, the injuries at issue in such cases are "`latent . . . , unknown and unknowable'" at the time the insurance policies were issued. (Id., at p. 682.)
In the process of reaching these determinations concerning the trigger of the insurer's duty to defend, we repeatedly employed and equated the term
In State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186 [145 Cal.Rptr.3d 1, 281 P.3d 1000] (Continental), we extended our analysis and holding in Montrose to cover not only the duty to defend, but also the duty to indemnify. And in the process we once again equated the term "loss," not with a judgment or settlement for a sum of money, but as synonymous with occurrence of bodily injury and property damage. We concluded that in connection with a "long-tail" environmental cleanup suit, each insurer was responsible, subject to policy limits, for the total amount of the insured's covered liability concerning continuous property damage.
The recognized rationale for enforcing a consent-to-assignment clause is to protect an insurer from bearing a risk or burden relating to a loss that is greater than what it agreed to undertake when issuing a policy. (E.g., Bergson, supra, 38 Cal. 541; Greco, supra, 191 Cal.App.2d at p. 682; Illinois Tool Works v. Commerce & Industry Ins. Co., supra, 962 N.E.2d at p. 1053.) It is undisputed that an insured may not transfer the policy itself to another without the insurer's consent, and in this sense all parties agree. But the "postloss exception" to the general rule restricting assignability, recognized in the many cases discussed earlier and codified in section 520, is itself a venerable rule that arose from experience in the world of commerce. The rule has been acknowledged as contributing to the efficiency of business by minimizing transaction costs and facilitating economic activity and wealth enhancement: "[A] major rationale for commercial insurance is to facilitate economic activity and growth by providing risk management protection for economic actors. . . . In the modern American economy, mergers, acquisitions, and sales are part of corporate life. For the most part, economists approve of this activity because it allows the marketplace to allocate resources to their most profitable uses. To the extent that insurance protection (for past but possibly unknown losses) may be more freely assigned as part of corporate recombinations, this lowers transaction costs and facilitates economic activity and wealth enhancement. Consequently, the general rule permitting post-loss assignment is a good rule—which is why the courts have
In view of the history described above, and consistent with the California cases touching on the subject (including Continental, supra, 55 Cal.4th 186; Montrose, supra, 10 Cal.4th 645; Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d 645; Bergson, supra, 38 Cal. 541; and Greco, supra, 191 Cal.App.2d 674) we conclude 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. We conclude that the statutory phrase does not contemplate that there need have been a money judgment or approved settlement before such a claim concerning that loss may be assigned without the insurer's consent. Only this interpretation of the statute's language barring veto of assignment by an insurer honors the clear intent demonstrated by the history of section 520 to avoid any "unjust" or "grossly oppressive" enforcement of a consent-to-assignment clause. (See ante, pt. III.B.1.) Specifically, as applied to this case and similar circumstances, only such an interpretation protects the ability of an insured, in the course of transferring assets and liabilities to another business entity in connection with a corporate sale or reorganization, to assign rights to claim defense and indemnification coverage provided by prior and existing insurance policies concerning the business's previous conduct. Because any such new business entity typically will assume both the assets and the liabilities of the prior business entity, the new business entity will understandably expect to obtain the rights to claim defense and indemnification coverage for such liabilities triggered during the policy period. If the insurer were able to prevent its insured from assigning rights to assert such claims unless first reduced to a money judgment or approved settlement, it would effectively exert precisely the type of unjust and oppressive pressure on the insured that the early decisions, California Code Commissioners, and Legislature sought to foreclose.
Hartford asserts that our interpretation of the word "loss" in section 520 conflicts with the proper interpretation of that same word in a corresponding
Hartford argues that in the context of section 108, "loss" must be interpreted as arising only after the underlying matter is first reduced to a judgment or approved settlement for a sum of money due. Focusing on the italicized words, and especially the phrase "loss resulting from liability," Hartford connects this language of section 108 to section 520's reference to permissible assignment "after a loss has happened." Hartford reasons that under both statutes, "`Loss' does not occur simultaneous with, but rather must `result from,' and occur subsequent to, the third party injury. In the way that the Insurance Code contemplated liability insurance, then, . . . `loss' arises, not from third party injury itself, but from `liability' which, in turn, may result from injury." It follows, Hartford argues, that "the insured's liability must be established before the insurer is obligated to indemnify the loss," and there can be "no claim against the insurer under an indemnity policy until the insured is held liable because being held liable is the necessary precondition to `loss.'" (Italics added.) We disagree.
It is true that an insurer's obligation to actually "cut a check" and transfer funds in performance of its duty to indemnify does not arise until there is a judgment or approved settlement for a sum of money due. (See Montrose, supra, 10 Cal.4th 645, 659, fn. 9 ["[t]he obligation to indemnify. . . arises when the insured's underlying liability is established"].) In this respect, Hartford is correct.
But contrary to Hartford's view, as observed in Ocean Accident, supra, 100 F.2d 441, 446, liability can arise simultaneously with loss and injury—at the same time someone causes a compensable injury—and not only when someone loses a lawsuit. There is no indication from section 108 or section 520, or other related contemporaneous statutes proposed by the California Code Commissioners and enacted by the 1935 California Legislature, that anyone understood the term "loss" as used in section 520 to have the meaning that Hartford proposes now—as arising only upon imposition of liability by entry of a judgment or approved settlement for a sum of money.
Hartford's amicus curiae Stonewall, citing Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 813-816 [119 Cal.Rptr. 858, 532 P.2d 1226], and venerable secondary authorities, asserts that with regard to statutes tracing back to the original Civil Code of 1872, the common law is expected to evolve and differ from—and, as appropriate, even control over—those original Civil Code provisions. Stonewall argues the same approach should apply here, and indeed, it urges that to the extent this court's common law decision in Henkel differs from section 520, our decision is itself "`controlling' over the Civil Code, not the other way around." Reliance on this aspect of Li's analysis is inapt in this setting, however.
This court in Henkel did not address section 520 and did not consider the language or the legislative history or purpose of that statute. We did not explore the wealth of judicial authorities, discussed earlier in this opinion, bearing on the proper interpretation of section 520. Now, we are cognizant of not only section 520 and related authorities, but also of the subsequent common law decisions of other courts, virtually all of which are at odds with our key holding in Henkel.
We also reject the related suggestion that section 520 is entitled to less judicial respect, or that we should decline to construe it now as we would had it been brought to our attention earlier, merely because the statute was assertedly overlooked until a few years after our decision in Henkel. As an initial matter, we observe that, contrary to Hartford's contention that section 520 has been ignored—having been cited in only one case before being raised in the present litigation in 2011—the statute and its predecessor were indeed noted and described in secondary sources between 1924 and 2005. (See ante, fn. 32.) In any event, we perceive a simple explanation for any prior relative obscurity or absence of express reliance on section 520 in any published case: Until the Henkel litigation, it appeared generally unnecessary for litigants or courts to cite or rely upon it.
In fact, the parties in this matter—including, significantly, Hartford itself—for decades implicitly operated under the influence and understanding of Ocean Accident, supra, 100 F.2d 441, and the widely accepted industry practice of allowing postloss assignment of rights to invoke liability coverage. As observed ante, at page 1185 and footnote 5, following the original Fluor's assignment of assets and liabilities to Fluor-2, between 2002 and 2008 Hartford treated Fluor-2 as entitled to invoke coverage relating to third
Hartford suggests that principles of stare decisis militate against overruling our key holding in Henkel. Of course, "a rule once declared in an appellate decision constitutes a precedent that should normally be followed. . . in cases involving the same problem." (9 Witkin, Cal. Proc. (5th ed. 2008) Appeal, § 481, pp. 540-541.) As Witkin observes, however, courts have articulated reasons for overruling a prior decision—among them (1) that it overlooked an existing statute; and (2) that it is contrary to the general law as reflected in other cases, including out-of-state cases before and after the decision. (Id., §§ 519, 530 p. 587 et seq., 600 et seq.) Although Fluor-2 and its amici curiae assert both grounds as reasons for overruling Henkel, it is sufficient to rely on the first, which Witkin aptly characterizes as "[p]robably the strongest reason" for not following a prior decision. (Id., § 519, p. 587.)
In Henkel, which as noted involved a postloss assignment of rights to invoke coverage under a third party liability policy, we rendered a common-law-based holding, concluding that such an assignment is subject to consent by the insurer unless "the benefit has been reduced to a claim for money due or to become due." (Henkel, supra, 29 Cal.4th at p. 945.) We now recognize that this determination, reached without consideration or analysis of section 520, conflicts with the rule prescribed by that statute. In analogous circumstances we have overruled our own prior authority. (Martin v. Palmer Union
For the reasons set forth, Insurance Code section 520 applies to third party liability insurance. Under that provision, 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. This result obtains even without consent by the insurer—and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement. Our contrary conclusion announced in Henkel Corp. v. Hartford Accident & Indemnity Co., supra, 29 Cal.4th 934, is overruled to the extent it conflicts with this controlling statute and this opinion's analysis. The matter is remanded to the Court of Appeal for proceedings consistent with this opinion.
Werdegar, J., Chin, J., Corrigan, J., Liu., J., Cuéllar, J., and Kruger, J., concurred.
The federal appellate court in Northern Insurance rendered two main holdings: First, it reasoned that under a theory of "product-line successor liability"—and regardless of whether the parties had by contract assigned the right to invoke coverage under the policy—the successor corporation Brown-Forman could claim California Cooler's policy benefits because, the court determined, the rights to indemnity and to a defense "followed the liability . . . by operation of law." (Northern Insurance, supra, 955 F.2d at p. 1357.) Second, the court held that the consent-to-assignment clause in the policy could not be enforced by the insurer because the underlying injuries had occurred prior to Brown-Forman's purchase of California Cooler's corporate assets and the resulting automatic (by operation of law) assignment of claims for coverage under the policy. The court reasoned that the rationale for enforcing a consent-to-assignment provision "vanishes when liability arises from presale activity" because "regardless of any transfer the insurer still covers only the risk it evaluated when it wrote the policy," and, moreover, the "cooperation clause of the policy" protected the insurer should the assignee "prove a reluctant partner in the defense." (Id., at p. 1358.)
Despite efforts over many decades, the Field Code was never enacted in New York. (Harrison, The First Half-Century of the California Civil Code (1922) 10 Cal. L.Rev. 185, 187.) It was, however, adopted in California and four other western states, North Dakota, South Dakota, Idaho, and Montana. (Ibid.)
In addition, a few recent cases from minority jurisdictions, employing an approach significantly different from Henkel, enforce consent-to-assignment clauses even more strictly than in that case, by failing to recognize any postloss exception to those clauses (even, apparently, as to claims that have been reduced to a money judgment). Significantly, Hartford does not promote or rely on the analysis in any of these latter cases, and briefly cites them only to counter the public policy assertion (see post, pt. III.B.6.) that postloss assignment of claims is necessary in order for corporations to efficiently transact business and evolve.
These minority cases are animated by the view that "freedom of contract" requires consent-to-assignment clauses be rigidly enforced—thereby valuing the contract rights of insurers to enforce such clauses, over the contract rights of parties to contract for transfer of such claims. Each case, implicitly or explicitly—and without any significant analysis—rejects the majority rule, which as noted generally enforces postloss assignment of claims under third party liability policies. The cases cited by Hartford are: Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund (2007) 117 Haw. 357 [183 P.3d 734, 747] and footnote 15 (enforcing consent-to-assignment clauses without considering whether the assignment occurred after the loss, and peremptorily rejecting the majority rule); Holloway v. Republic Indemnity Co. of America (2006) 341 Or. 642 [147 P.3d 329] (declining to enforce postloss assignment of claim under a liability policy, barely acknowledging the contrary view of most jurisdictions, and finding no public policy that would require the court to void the clause); In re Katrina Canal Breaches Litigation (La. 2011) 63 So.3d 955, 959 (acknowledging the overwhelming majority rule and the same prior rule in La., but concluding that an intervening statute protects the "freedom of contract" and strictly bars assignment, even regarding claims under first party property policies); and also Keller Foundations, Inc. v. Wausau Underwriters Ins. Co. (5th Cir. 2010) 626 F.3d 871, 874-878 (acknowledging the overwhelming majority rule, but applying Tex. law, enforcing consent-to-assignment provisions in all circumstances). Academic commentators have subjected cases such as these to scathing criticism. (1 Stempel on Insurance Contracts, supra, § 3.15[D], pp. 3-130 to 3-132 [analyzing Holloway, supra, 147 P.3d 329].)
The decision has met a similar fate in practice guides. (See, e.g., 1 Stempel on Insurance Contracts, supra, § 3.15[D], pp. 3-118.1 through 3-127 [extensively critiquing Henkel in six respects and concluding that the case "may become an outlier decision apart from the mainstream"]; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2014) ¶ 7:430.7, p. 7A-170 [observing that because "substantial injuries had allegedly occurred prior to the assignment to Henkel, the transfer had no effect on the insurer's coverage risk and its consent arguably should not have been necessary . . . "]; DiMugno & Glad, Cal. Insurance Law Handbook (2014) § 44:6, p. 1232 [asserting that the decision is "difficult to reconcile" with Montrose, supra, 10 Cal.4th 645, and that "[s]uccessor corporations are likely to find it exceedingly difficult, if not impossible, to purchase insurance for injuries that have already occurred before the successor's purchase of a business" and this will "inhibit[] corporate reorganization or sale"]; 1 Cal. Liability Insurance Practice: Claims ; Litigation (Cont.Ed.Bar 2014) § 2.2A, p. 2-3 (rev. 9/13) [describing Henkel's holding and asserting: "It is clear that the insurers owe someone a duty of defense and indemnification under their policies for injuries occurring while they were in effect. Permitting the successor to receive the policy benefits does not increase the insurers' risk."].)
