Insurance Protection for Losses May Be Freely Assigned in Connection with a Corporate Sale or Reorganization
On August 20, 2015, the California Supreme Court handed down its much-anticipated decision in Fluor Corporation v. Superior Court (Hartford Accident & Indemnity Company). The court held that Insurance Code §520, a seldom cited provision of the Insurance Code dating back to 1935, bars an insurer from refusing to honor a policyholder’s assignment of policy coverage regarding injuries or damages that pre-date the assignment. In the process, the high court overruled its 2003 decision in Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal.4th 934, which had held that when a liability policy contains a “consent-to-assignment” clause (a standard provision in pre-1985 policy forms), the policyholder may not assign its rights to policy benefits without the insurer’s consent until the claim against the insured is reduced to a judgment or settlement with the claimant.
The decision, which deals with post-loss assignment of insurance benefits under general liability policies in the context of a corporate reorganization, has particular relevance to companies who acquire companies with existing environmental or other long-tail liabilities. Before the Fluor decision, it was often necessary to structure a transaction as a stock purchase and maintain the target company as a subsidiary of the acquiring company to obtain the benefit of the target company’s legacy coverage typically dating back many years to the time period when the environmental or other liabilities for the target company’s operation arose. In Fluor, the California Supreme Court expressly recognized that its decision will protect the ability of a policyholder “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.”
Greenberg Glusker represents policyholders in insurance recovery litigation against insurers. For more information regarding our insurance coverage practice, please contact Jonathan B. Sokol at 310.201.7423 or [email protected].