On August 20, 2015, the California Supreme Court issued its landmark decision in Fluor v. Superior Court, overruling its prior holding in Henkel Corp. v Hartford, which precluded successor entities from tapping into their predecessors’ insurance assets for inherited long-tail liabilities. In Henkel, the court held that a contractual assignment of insurance assets in a corporate transaction was ineffective because of the insurance policies' anti-assignment clauses, which require the insurer’s consent before any assignment is valid. The parties to Henkel, however, did not apprise the court of California Insurance Code section 520. Section 520 provides that an agreement “not to transfer a claim of the insured against the insurer after a loss has happened is void if made before the loss . . . .” Reed Smith filed an amicus brief in Fluor, urging the court to apply section 520 to hold that insurance anti-assignment clauses do not preclude the transfer of insurance assets for liability for historic conduct covered under those policies. The Fluor court agreed, holding that section 520 compels that result.
In its lengthy opinion, the court conducted a very careful and thorough analysis of the statutory history and purpose of section 520. The court noted that its “postloss rule” prevents an insurer’s unfair and oppressive conduct in precluding an assignment of coverage attributable to past events for which the insured already paid its premiums. It further facilitates the transfer of assets and liabilities between business entities without fear of jeopardizing insurance coverage for prior conduct. In short, the Fluor rule protects the insurance coverage purchased by the insured, by ensuring that a simple corporate transfer does not eviscerate that coverage. As noted by the court, the Fluor decision aligns California with the majority of courts that have considered this issue, and is an important decision for corporate policyholders involved in corporate acquisitions and transactions.
Reed Smith’s Insurance Recovery Group has unmatched experience in advising corporate policyholders in all aspects of insurance law. If you are facing a challenge to coverage by your insurance carriers, please contact Reed Smith Insurance Recovery Group’s Global Practice Group Leader Douglas E. Cameron, or any Reed Smith coverage attorney with whom you routinely work, for assistance or with questions.
For the second year in a row, U.S. News-Best Lawyers “Best Law Firms” named Reed Smith its “National Law Firm of the Year” in Insurance Law (2014-2015). In addition, the group is named among the best policyholder coverage practices by Chambers USA, Chambers UK, Legal 500 US and Legal 500 UK. American Lawyer Media’s Legal Intelligencer named Reed Smith’s Insurance Recovery Group one of Pennsylvania’s “Litigation Departments of the Year” for 2014 – the only policyholder-focused firm recognized in the Pennsylvania-based publication – and The National Law Journal named the Chicago Insurance Recovery team the 2014 and 2015 “Chicago Litigation Department of the Year: Insurance.”
Client Alert 2015-237