California Supreme Court Overrules Henkel and Decides that Statute Bars “Consent to Assignment” Clauses

The California Supreme Court has overruled its 2003 decision in Henkel Corp. v. Hartford Accident & Indemnity Co. and ruled that a state law tracing back to 1872 had changed its determination regarding the enforceability of “consent to assignment” clauses in insurance policies.

Background

Henkel concerned an insured’s assignment of rights under a liability policy. The California Supreme Court in Henkel held that the consent-to-assignment clause in that policy was enforceable.  The clause precluded the insured’s transfer of the right to invoke coverage without the insurer’s consent even after the coverage-triggering event – a third party’s exposure to asbestos resulting in personal injury – already had allegedly occurred.

Specifically, the court decided in Henkel that when a liability insurance policy contained a consent-to-assignment clause, an insured could not assign its right to invoke coverage under the policy without the insurer’s consent until there existed a “chose in action” against the insured; that is, when claims against the insured had “been reduced to a sum of money due or to become due under the policy.”

The Court’s Decision

Now, the California Supreme Court has overruled Henkel.

In its new decision, the court relied on a statute that, it said, had not been cited to it and that it had not considered in Henkel:  California Insurance Code Section 520.

The court found that Section 520, originally enacted in 1872, applied to third party liability insurance as well as to first party policies to bar an insurer, “after a loss has happened,” from refusing to honor an insured’s assignment of the right to invoke the insurance policy’s coverage for such a loss.

Moreover, the court ruled, the phrase “after a loss has happened” in Section 520 meant a loss sustained by a third party that was covered by the insured’s policy, and for which the insured might be liable. The court held the phrase did “not contemplate that there need have been a money judgment or approved settlement before such a claim concerning that loss may be assigned without the insurer’s consent.”

Therefore, the court concluded, where personal injury or property damage resulting in loss occurs within the time limits of a 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 – even where the insurer has not consented and even though the dollar amount of the loss is unknown or undetermined until established later by a judgment or approved settlement.

The case is Fluor Corp. v. Superior Court of Orange County, No. S205889 (Cal. Aug. 20, 2015).