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.
1175
Latham & Watkins, G. Andrew Lundberg, Brook B. Roberts and John M. Wilson for Petitioner.
Alok K. Gupta; Reed Smith, James C. Martin, David H. Halbreich and Traci S. Rea for Henry Company LLC and Parsons Corporation as Amici Curiae on behalf of Petitioner.
Perkins Coie and Timothy L. Alger 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.; Gaims, Weil, West & Epstein, Alan Jay Weil, Jeffrey B. Ellis; Shipman & Goodwin, James P. Ruggeri and Joshua D. Weinberg for Real Party in Interest.
Troutman Sanders, Thomas H. Prouty 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 for Complex Insurance Claims Litigation Association and America Insurance Association as Amici Curiae on behalf of Real Party in Interest.
OPINION
CANTIL-SAKAUYE, C. J.--We granted review to consider whether
The statute that was not cited to us or considered 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,
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.
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
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 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.
C. Notification of the spinoff, and continuing coverage by Hartford
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.”5
D. Hartford‘s request for a declaration that it has no obligation to defend or indemnify Fluor-2 because Hartford did not consent to the assignment of claims for coverage under the liability policies
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
E. Fluor-2‘s unsuccessful motion for summary adjudication
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
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
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.
II. The decision in Henkel, and the Court of Appeal‘s decision below
A. The decision in Henkel
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).7
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.8 We found it unnecessary to resolve that conflict because we determined that Henkel Corporation‘s liability had in fact been assumed by contract, and not imposed by operation of law.9 Moreover, we held, “when liability is assumed by contract, the successor‘s rights are defined and limited by that contract.” (Henkel, at p. 943, italics added.)
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, post-loss 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.)11 It followed, we found, that “[i]n 1979, when Amchem No. 2 assumed the liabilities of Amchem No. 1, the duty of defendant insurers to defend and indemnify Amchem No. 1 from the claims of the [injured workers] had not become an assignable chose in action.” (Henkel, at p. 944, italics added.) Hence, we concluded, Amchem No. 1 could not properly assign its rights to invoke coverage without the insurers’ consent. Finally, we also rejected Henkel Corporation‘s contention
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.)13
B. The Court of Appeal‘s decision applying Henkel
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 policies14 with “third party” liability policies.15 It asserted that whereas the concept of “loss” was easily understood and applied in the context of first party insurance policies, the same concept is problematic in the context of third party liability policies. The court asked, “Does liability insurance provide protection for the ‘loss’ sustained by insureds” only after insureds “are subjected to a judgment for money damages“? Or is loss triggered “much earlier“-at the time “when the victim of the insured‘s conduct sustains bodily injury or property damage?” The court suggested that if it were to find section 520 applicable to third party liability insurance, it would construe loss as happening only later, upon a finding of liability or imposition of a judgment-and not earlier, when the original injury or damage first occurred. But ultimately the court avoided deciding that and related questions because, it reasoned, the statute‘s history showed that the Legislature intended the provision would apply only in the context of first party insurance policies, and not to third party liability policies such as those at issue in this case and in Henkel.
The Court of Appeal wrote: ”
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.17 The court also implied that the 1947 amendment was simply irrelevant.
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
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.
A. Does section 520 apply to third party liability insurance?
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,19 as explained below, by 1935, when section 520 was adopted-and especially by 1947, when that section was significantly amended-third party liability insurance had become prevalent and well developed. Moreover, by then it had become clear that the provision‘s coverage was not restricted to first party policies, and did indeed also regulate third party liability policies.
1. Enactment of the Insurance Code, including section 520, in 1935
The California Code Commission was established in 1929 to reconfigure the state‘s existing four codes-the Civil, Criminal and Political Codes and the Code of Civil Procedure-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.)20 The resulting code was and remains organized in three principal divisions, with division 1 addressing “General Rules Governing Insurance,” division 2 dealing with “Classes of Insurance,” and division 3 concerning the “Insurance Commissioner.” The statute at issue here, section 520, is located in the general rules division.
Although the appellate court below downplayed the scope and extent of the
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.
2. Amendment of section 520 in 1947
The 1947 amendment to
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.”29 Moreover, the 1947 amendment, which specifically identified the sole two exemptions to section 520 (and then dealt separately with assignments of those types of policies—see ante, fn. 28), triggers the well-established rule that “if exemptions are specified in a statute, we may not imply additional exemptions unless there is a clear legislative intent [to do so].” (Sierra Club v. State Bd. of Forestry (1994) 7 Cal.4th 1215, 1230 [32 Cal.Rptr.2d 19, 876 P.2d 505].) And yet, as the Insurance Commissioner notes, the appellate court below, by finding section 520‘s general rule inapplicable to liability insurance, improperly did just that.30
For all of these reasons, we reject the threshold conclusion of the Court of Appeal, and hold that section 520 applies not only to first party policies, but also to third party liability policies.
B. How does section 520 apply in the context of third party liability insurance?
In determining the proper interpretation of
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.31
The phrase “after a loss has happened” is ambiguous when viewed in the context of liability policies. It could refer, as Fluor-2 asserts it should, to the time period after the injury (loss) to a third party has happened—an occurrence for which the insured may be potentially liable, and for which the insured obtained and paid for liability coverage. As applied to this case, Fluor-2 argues, loss “happened” after a third party‘s exposure to asbestos resulted in bodily injury between mid-1971 and mid-1985. Thereafter, it asserts, in late 2000 the original Fluor Corporation had the authority, without the consent of the insurer, to assign its right to invoke defense and indemnification coverage under its third party liability policies for personal injuries that had occurred during the policy periods.
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.
1. The 1872 statute and the preceding decisions from New York and California
a. Adoption of the Civil Code and the predecessor statute in 1872
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.33
Our Legislature adopted the proposed Civil Code as recommended, including this provision as section 2599. (Civ. Code (Springer 1872 ed.) § 2599, p. 427.) Immediately thereafter, when the commissioners published an annotated version of the new Civil Code, they modified the draft 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.
b. Goit v. National Protection Ins. Co.
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.)
c. Courtney v. N.Y. City Ins. Co.
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,
d. Dey v. Poughkeepsie Mutual Ins. Co. and Bergson v. Builders’ Ins. Co.
In the third decision cited in the contemporaneous 1872 annotation concerning the predecessor to
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
e. The relevance of this early history and these early cases concerning legislative intent regarding the predecessor to section 520
Fluor-2 and its amici curiae35 emphasize language in Goit focusing on the need to protect insurers (and allow enforcement of a prohibition on assignment) “during the continuance of the risk.” (Goit, supra, 25 Barb. at p. 193.) From this, Fluor-2 extrapolates the following third party liability rule: Once a risk insured against “is realized by the happening of a ‘loss’ which triggers coverage . . . anti-assignment clauses are deemed to be an impermissible restraint on alienation prohibited by law.” In this way, Fluor-2 reads the predecessor provision, and now section 520, as codifying the rule of the early New York cases: after a loss has occurred, courts will treat as void—and unenforceable—any policy provision purporting to allow the insurer to veto an insured‘s assignment of the right to invoke defense and indemnification coverage.
By contrast, Hartford and especially its amicus curiae Stonewall Insurance Company (Stonewall)36 suggests that the early New York cases contemplated that there needed to be a “perfected” and discrete claim before it could be assigned to an entity that was not a named insured. It follows, they suggest, that had the Legislature actually contemplated application of the predecessor to section 520 to liability insurance, it must have intended that such a post-loss claim could not be assigned unless the insured‘s claim has first been reduced to a chose in action, reflected by a judgment or approved settlement for a sum of money. In response, Fluor-2 relies on Bergson, supra, 38 Cal. 541, to refute Hartford‘s assertions that (1) in 1872 the common law required a
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.38 In our view, these early cases indicate that Civil Code former section 2599 (the predecessor to
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.
2. Subsequent early third party liability insurance cases from various jurisdictions
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.
a. When does the duty to indemnify under third party liability insurance generally accrue?
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
Although these decisions held that an insurer‘s duty under a third party liability policy accrued at the time the third party sustained injury—and not when a judgment was entered against the insured—they reached that conclusion in a setting unrelated to the assignment of an insured‘s rights under a policy. As explained below, however, the next set of early liability insurance cases addressed such assignment issues.
b. Assignment of rights to invoke liability coverage: Application of the “prior loss” rule in the face of a clause requiring consent of the insurer
In the late 19th century, the proposition that a consent-to-assignment clause is void and unenforceable with respect to post-loss 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.41 Thereafter, a key federal decision in 1907 extended this rule to post-loss assignment of rights to invoke coverage under third party liability insurance.
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.42 Indeed, our Court of Appeal, in Rodgers v. Pacific Coast Casualty Co. (1917) 33 Cal.App. 70 [164 P. 1115] (Rodgers), addressing the propriety of a post-loss “assignment of a matured [third party liability] claim against the insurer,” observed that the insurer in that case did not even contest the propriety of the assignment to an injured plaintiff. (Id., at p. 72.) Without citing Maryland Casualty, the court enforced that assignment in a decision displaying great solicitude for both an injured party and an insured in the face of objections by the insurer. Thereafter this court specifically approved the appellate court‘s analysis and conclusion in a per curiam opinion issued on denial of hearing in this court. (See id., at pp. 75-76.)
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).43 One of the seller‘s assets was its interest in a liability insurance policy issued by its insurer, Ocean Accident, covering ” ‘accidental bodily injuries sustained by Assured‘s employees,‘” and agreeing to indemnify ” ‘against loss by reason of the liability imposed by law upon the Assured for damages on account of such injuries.‘” (Ocean Accident, supra, at p. 442.)
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 1947,44 the decision in Ocean Accident had become an accepted part of the legal landscape.
The rule of Ocean Accident—voiding consent clauses as applied to post-loss 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.46
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 post-loss 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 post-loss 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 post-loss 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 Ore. 642 [147 P.3d 329] (declining to enforce post-loss 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].)
5. California cases construing “loss” in the related context of determining the “trigger of liability”
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.48 We explained that our determination “resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. It also
6. Application of these principles to interpretation of section 520
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 “post-loss 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
7. Challenges to this interpretation of section 520
a. “Loss” as used in section 108
Hartford asserts that our interpretation of the word “loss” in
Hartford argues that in the context of
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
b. Derivation from the 1872 Civil Code
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
This court in Henkel did not address
c. The relative obscurity of the statute
We also reject the related suggestion that
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 post-loss 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
IV. Stare Decisis
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. (Witkin, § 519, p. 587.)
In Henkel, which as noted involved a post-loss 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
V. Conclusion
For the reasons set forth,
Werdegar, J., Chin, J., Corrigan, J., Liu., J., Cuéllar, J., and Kruger, J., concurred.
Notes
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.)