(Article from Insurance Law Alert, September 2015)
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Under prior California case law, as set forth in Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69 (Cal. 2003), a consent-to assignment clause precluded the transfer of insurance rights without insurer consent, even if a covered loss had occurred prior to transfer. Henkel explicitly held that a transfer of insurance rights was allowed only if a “chose in action” existed (i.e., if claims had been reduced to a sum of money due). Last month, the California Supreme Court overruled Henkel, finding it inconsistent with state statutory law. Fluor Corp. v. Super. Ct. of Orange Cnty., 354 P.3d 302 (Cal. 2015).
In Fluor, the California Supreme Court ruled that the enforceability of consent-to-assignment clauses is governed by California Insurance Code section 520, which provides that “[a]n agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.” A California trial court and intermediate appellate court had declined to apply section 520, finding that assignment was prohibited by Henkel. The California Supreme Court reversed. First, the court held that section 520 was valid and effective despite its “relative obscurity.” Second, the court concluded that section 520 was not limited to first-party insurance and extended to third-party liability policies. Finally, the court held that the statutory phrase “after a loss has happened” was ambiguous and should be interpreted to mean “immediately after the injury or damage covered by the insurance policy has occurred.” Therefore, the court concluded that
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. 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.
As the court noted, a majority of jurisdictions allow a post-loss transfer of insurance rights notwithstanding an anti-assignment clause. Indeed, a New Jersey appellate court reached this conclusion last month in
Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 2014 WL 10212769 (N.J. Super. Ct. App. Div. Aug. 12, 2015), ruling that a post-loss transfer was valid even absent insurer consent. The
Givaudan court explained, “if there has been an assignment of the right to collect or to enforce the right to proceed under a policy
after a loss has occurred, the insurer’s risk is the same because the liability of the insurer becomes fixed at the time of loss.”