Key Decisions

September 2012 – Advocating Novel Interpretations Of The Law

(filed under: Key Decisions Archive | September 26, 2012)

Other Cases Of Interest

Advocating Novel Interpretations Of The Law Is Commendable, But One Must Be Wary Of Going Too Far

Fluor Corporation v. Superior Court
(Cal. Ct. of App., 4th Dist.), filed August 30, 2012

Fluor Corporation was insured by Hartford Accident and Indemnity Company. After a complex corporate restructuring that resulted in an entirely new and different Fluor Corporations, a dispute arose over Hartford’s duty to defend. In the ensuing coverage litigation, Hartford asserted that anti-assignment language in its policies precluded coverage for the new entity. Fluor sought to dispose of this assertion by way of a motion for summary adjudication. The trial court denied Fluor’s motion.

The Court of Appeal denied Fluor’s petition for a writ of mandate, explaining:

Ostensibly, this would be an open-and-shut case, at least for purposes of the instant motion for summary adjudication. In Henkel Corp. v. Hartford Accident & Indemnity Co., (2003) 29 Cal.4th 934 (Henkel), our Supreme Court enforced an identical consent-to-assignment clause under a similar fact pattern. As a result, a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s “occurrence-based” liability coverage.

However, regardless of the facts that (1) the California Supreme Court decided the Henkel case and (2) lower courts are obligated to follow the law as established by the California Supreme Court, Fluor wanted the Court of Appeal to reach a different result. The Court of Appeal said:

But, we are told, the Supreme Court did not have access to all the pertinent facts. Despite the case’s high visibility, drawing amicus briefs on both sides, the decision is described as having been “announced in ignorance” as a result of a “remarkable failure of the adversary system.” Even the “integrity of that proceeding” is called into question.

The court continued:

Why are we urged to ignore this controlling decisional law? According to petitioner [Fluor], we must do so because the Legislature has adopted a contrary rule — a “statutory directive” which “conclusively draws the line . . . .”

Petitioner [Fluor] has unearthed this legislative pronouncement in a statute originally enacted in 1872, which provides: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss . . . .” (Cal. Ins. Code § 520.) It calls this statute a “controlling pronouncement of the law,” which announces an “expressed legislative will.”

Of this “controlling pronouncement of the law,” the court observed:

During the 130 years since its enactment, the 1872 statute has been cited only once. No one raised it in Henkel. This decision will be the second judicial opinion in the history of the state to even mention the statute, and the first to address it.

There is a logical reason for this obscurity. The 1872 statute can have no bearing as a “clear” or “controlling” legislative expression on the assignability of liability insurance for the simple reason that liability insurance did not exist in 1872. We will not ascribe to the dead hand of the 1872 Legislature controlling power over a medium that had yet to come into being.

Elsewhere in its opinion, the court said of this “controlling pronouncement of the law”:

Insurance Code section 520’s obscurity survived through the appellate proceedings in Henkel. Despite Henkel’s notoriety, and the national attention it drew, no litigant or amici so much as mentioned the supposed centrality of section 520, either before or after the decision’s issuance. Fluor-2 is mystified by this omission and can offer no rational explanation for this “failure of the adversary system” which it characterizes as both “remarkable” and “unique.” “[Fluor-2] has been unable to identify another instance in which the parties, numerous amici curiae, the trial court, a Court of Appeal [citation], and finally our Supreme Court, all failed to identify a California statute squarely controlling the legal issue presented in a case — much less a case of major economic importance and national visibility.” (Fn. omitted.)

We have a more mundane explanation why Insurance Code section 520 has remained hidden for so long. There is less to the statute’s supposed significance regarding assignability of liability insurance than meets the eye.

The court reasoned: “It is a fundamental doctrine of statutory interpretation that statutes are to be construed in the context in which they were written.” Thus, it looked at the context in which the statute was written:

Insurance Code section 520, as we have noted, was first adopted in 1872, when the industrial revolution and California statehood were in their childhood, seven years before California adopted its current constitution in 1879. At the time, liability insurance did not even exist as a concept. Insurance provided protection against first party marine, fire, and property damage losses.

As such, the concept of “loss,” to which the 1872 statute referred, is easily identifiable for first-party property damage coverage.

The concept of “loss” for purposes of a liability insurance policy, particularly in the context of injuries that do not manifest for years or decades after the wrongful act, is entirely different. This difference gives rise to different interests relative to the assignability of policies. Since the Legislature could not have considered the difference or different interests, it could not have intended the statute to apply to liability insurance policies.