The California Supreme Court Will Take Another Look At Henkel

On December 12, 2012, the California Supreme Court granted review in Fluor Corporation v. Superior Court (2012) 208 Cal.App.4th 1506, previously commented upon in this blog. The issue on review, as stated on the Supreme Court’s website, is: “Are the limitations on assignment of third party liability insurance policy benefits recognized in Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 inconsistent with the provisions of Insurance Code section 520?”

At issue in Henkel was a standard consent-to-assignment clause “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.” (See Henkel, supra, 29 Cal.4th at 943.) In Henkel, the California Supreme Court held that such clauses are generally valid and enforceable until the time that claims had been “reduced to a sum of money due or to become due under the policy.” (Henkel, supra, 29 Cal.4th at 944.)

Enacted in 1872, Insurance Code section 520 states that: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss . . . .” (Ins. Code, § 520.) The statute was not addressed in Henkel or in any of the briefing in that case. Fluor calls the statute a “controlling pronouncement of the law.” On that basis, Fluor argues that Henkel was wrongly decided and should be reversed.

The Fourth District didn’t buy the argument when presented in the Court of Appeal. First, it noted that Henkel was binding authority on California appellate courts. On review, however, the Supreme Court will take a fresh look at the decision. Second, the Fourth District noted that Insurance Code Section 520 is “one of the more obscure provisions of the California codes. No court has ever relied on it, and it has been cited only once….The statute is unmentioned in either treatise or commentary.” Finally, the Fourth District pointed out that liability insurance didn’t even exist in 1872 when the statute was written. “We will not ascribe to the dead hand of the 1872 Legislature controlling power over a medium that had yet to come into being.”

The Supreme Court will now settle the dispute. Briefing commences in March 2013.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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