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Transfer of coverage allowed after corporate restructuring

Posted On: Aug. 21, 2015 12:00 AM CST

Transferring insurance coverage in a merger or acquisition does not require insurer consent, the California Supreme Court has ruled.

The state high court's ruling Thursday in Fluor Corp. v. Superior Court of Orange County (Hartford Accident & Indemnity Co.) overturned its 2003 ruling in Henkel Corp. v. Hartford Accident & Indemnity Co., in which it came to the opposite conclusion.

The case involved a dispute between Fluor and Hartford arising from a 2000 corporate restructuring in which Fluor split itself into two companies. Hartford wrote general liability coverage for the original Fluor, but when sued in California Superior Court for coverage by the new Fluor, “Hartford asserted that assuming the original Fluor Corporation had attempted to assign its insurance coverage claims to (the new Fluor), the original corporation had failed to comply with the consent-to-assignment provision found in each policy,” according to the Supreme Court decision.

Fluor argued that Hartford's claims failed as a matter of law because California Insurance Code Section 520, by its terms, bars enforcement of the policies' consent-to assignment clauses “after a loss has happened,” and that the losses in question occurred before the restructuring and that these claims had been assigned to the new Fluor along with the original company's other assets.

The trial court and the Court of Appeal disagreed with Fluor, holding that the Supreme Court had addressed the issue in the Henkel decision.

But the state Supreme Court ruled that Section 520 of the state Insurance Code applies to third-party liability.

“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,” Chief Justice Tani Cantil-Sakauye wrote in a unanimous decision.

“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., is overruled to the extent it conflicts with this controlling statute and this opinion's analysis.”

The case was sent back to the Court of Appeal for reconsideration.