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 due to 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 bars an insurer, “after the loss has happened,” from refusing to honor an insured’s assignment of coverage for that loss. Reed Smith filed an amicus brief in Fluor urging the Court to apply Section 520 to hold that anti-assignment clauses do not preclude the transfer of coverage for liability relating to historic conduct. The Fluor Court agreed, holding that Section 520 compels that result.
Fluor prevents an insurer from unfairly blocking an assignment of coverage due to past events for which the insured already paid its premiums. It further facilitates the transfer of assets and liabilities to between business entities without fear of jeopardizing insurance coverage for prior conduct. Fluor is an important and positive decision for corporate policyholders involved in corporate acquisitions and transactions.