Fluor Corp. v. Superior Court of Orange Cnty.

61 Cal.4th 1175

354 P.3d 302

191 Cal.Rptr.3d 498

FLUOR CORPORATION, Petitioner

v. The SUPERIOR COURT of Orange County, Respondent;Hartford Accident & Indemnity Company, Real Party in Interest.

No. S205889.

Supreme Court of California

Aug. 20, 2015.

Latham & Watkins, G. Andrew Lundberg, Los Angeles, Brook B. Roberts and John M. Wilson, San Diego, for Petitioner.

Alok K. Gupta, Pasadena; Reed Smith, James C. Martin, David H. Halbreich, Los Angeles, and Traci S. Rea for Henry Company LLC and Parsons Corporation as Amici Curiae on behalf of Petitioner.

Dickstein Shapiro and Kirk A. Pasich, Los Angeles, for United Poliyholders as Amici Curiae on behalf of Petitioner.

Perkins Coie and Timothy L. Alger, Palo Alto, for Alpha Appalachia Holdings, Inc., as Amicus Curiae on behalf of Petitioner.

Kamala D. Harris, Attorney General, Susan Duncan Lee, Acting State Solicitor General, Kathleen A. Kenealy, Chief Assistant Attorney General, Paul Gifford, Assistant Attorney General, Joyce E. Hee and Anne Michelle Burr, Deputy Attorneys General, for The California Insurance Commissioner as Amicus Curiae on behalf of Petitioner.

No appearance for Respondent.

Horvitz & Levy, Jason R. Litt, John A. Taylor, Jr., Encino; Gaims, Weil, West & Epstein, Alan Jay Weil, Jeffrey B. Ellis, Los Angeles; Shipman & Goodwin, James P. Ruggeri and Joshua D. Weinberg for Real Party in Interest.

Troutman Sanders, Thomas H. Prouty, Irvine, and Patrick F. Hofer for Stonewall Insurance Company as Amicus Curiae on behalf of Real Party in Interest.

Gordon & Rees, Dave C. Capell and Dawn N. Valentine, San Francisco, for Complex Insurance Claims Litigation Association and America Insurance Association as Amicus Curiae on behalf of Real Party in Interest.

Opinion

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.

Henkel, like the present case, concerned an insured's assignment of the right to invoke defense and indemnification coverage under a liability policy issued by real party in interest Hartford Accident & Indemnity Company (Hartford). We held in Henkel that the 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—like here, a third party's exposure to asbestos resulting in personal injury—had already occurred. Specifically, we determined in Henkel that when a liability insurance policy contains a consent-to-assignment clause an insured may not assign its right to invoke coverage under the policy without the insurer's consent until there exists a “chose in action” against the insured, which we found in Henkel occurs only when the claims against the insured have “been reduced to a sum of money due or to become due under the policy.” (Henkel, supra, 29 Cal.4th at p. 944, 129 Cal.Rptr.2d 828, 62 P.3d 69, italics added.)

The statute that was not cited to us or considered in Henkel, Insurance Code section 520 (hereafter sometimes section 520 ),¹ specifically restricts an insurer's ability to limit an insured's right to transfer or assign a claim for insurance coverage. As discussed post, part III.B., section 520 bars an insurer, “after a loss has happened,” from refusing to honor an insured's assignment of the right to invoke the insurance policy's coverage for such a loss. Fluor Corporation (which, for reasons explained below, we will refer to as Fluor–2 in its post–2000 incarnation) contends that when an assignment takes place, as here, after a third party's exposure to asbestos resulting in personal injury for which the insured may be potentially liable, “a loss has happened” within the meaning of section 520 and an insurer cannot thereafter rely on a consent-to-assignment clause in a liability insurance policy to avoid the effect of the assignment. In other words, Fluor–2 asserts that, by virtue of section 520, under such circumstances an insured's assignment of the right to invoke coverage is effective without the insurer's consent despite the existence of a consent-to-assignment clause, contrary to this court's decision in Henkel.

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, properly construed in light of its relevant language and history, section 520 bars an insurer from refusing to honor an insured's assignment of policy coverage regarding injuries that predate the assignment. It follows that the decision in Henkel, which assessed the proper application of a consent-to-assignment clause under common law principles, cannot stand in view of the contrary dictates of the controlling statutory provisions of section 520.

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, borne 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.

I. Facts and Procedure

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–1986.²

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 noted, each of the policies contains a consent-to-assignment clause reading: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.”

A. The asbestos lawsuits

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.

B. Fluor's acquisition and spinoff of A.T. Massey

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 longstanding 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...