Historically, the assignment of insurance rights is part of a standard asset transfer in corporate transactions. Assignees typically acquire liabilities along with the corresponding insurance rights of the company to cover future claims arising out of previous business activities.

Under California law, insurance policy holders are now permitted to assign rights to their insurance coverage without consent from the insurance company. This development follows the reversal of a longstanding California decision issued in 2003 in Henkel Corp. v. Hartford Accident & Indemnity Co. In that case, the court was presented with a central issue: when the plaintiff, Henkel, acquired a target company did it also acquire the benefits of the insurance policy issued by the defendant, Hartford Accident and Indemnity Co.?

In Henkel, the California Supreme Court ruled that the transfer of insurance rights was invalid because it violated the “consent to assign” provision in most insurance policies. Thus, the ruling established that the insurance company must provide prior consent before the policyholder transfers the policy. The Court seemingly contradicted longstanding, standard practice for insurance assignments that presumed that once an insurer’s coverage obligations are fixed, the assignor is transferring only the contractual right, not the policy itself.

This issue was revisited in the case of Fluor Corporation v. Superior Court of Orange County earlier this year. In reaching the opposite conclusion, the Court relied on a previously overlooked statute to decide that the anti-assignment clause of an insurance policy was not enforceable. Under California Insurance Code Section 520, any agreement not to assign an insured’s claim under the policy after the loss has occurred is void. The Court determined that this statute was applicable and the consent of the insurance company is not required to assign the right of coverage under a third party liability policy after the occurrence of the loss incident.

Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.