Fluor Corp. v. Superior Court of Orange Cnty.

• Decision Date: 30 August 2012
• Docket Number: No. G045579.,G045579.
• Citation: 12 Cal. Daily Op. Serv. 10209,146 Cal.Rptr.3d 527,2012 Daily Journal D.A.R. 12345,208 Cal.App.4th 1506
• Court: California Court of Appeals Court of Appeals
• Parties: FLUOR CORPORATION, Petitioner, v. The SUPERIOR COURT of Orange County, Respondent; Hartford Accident & Indemnity Company, Real Party in Interest.

208 Cal.App.4th 1506

146 Cal.Rptr.3d 527

12 Cal. Daily Op. Serv. 10,209

2012 Daily Journal D.A.R. 12,345

FLUOR CORPORATION, Petitioner,

v. The SUPERIOR COURT of Orange County, Respondent;Hartford Accident & Indemnity Company, Real Party in Interest.

No. G045579.

Court of Appeal, Fourth District, Division 3, California.

Aug. 30, 2012.

See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 713.

Latham & Watkins, San Diego, Brook B. Roberts and John M. Wilson for Petitioner.

No appearance for Respondent.

Gaims, Weil, West & Epstein, Los Angeles, Alan Jay Weil; Shipman & Goodwin, James P. Ruggieri and Joshua D. Weinberg for Real Party in Interest.

OPINION

IKOLA, J.

There are two corporate Fluors involved in this writ proceeding. We consider whether one Fluor corporation can assign its rights under several liability insurance policies to another Fluor corporation as a result of a complex corporate restructuring. The liability insurer objects based on the Fluors' failure to secure its approval under the consent-to-assignment clauses in the insurance policies.

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, 129 Cal.Rptr.2d 828, 62 P.3d 69( 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. Since the two Henkel corporations retained their separate identities and the claims of the tort claimants had not been reduced to a sum of money due or to become due under the policy, the Supreme Court enforced the policy's consent-to-assignment clause.

Henkel was heavily litigated and closely watched. We cannot reevaluate its wisdom or merits.

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.

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

Petitioner 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....” (Ins.Code, § 520.) It calls this statute a “controlling pronouncement of the law,” which announces an “expressed legislative will.”

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.

IFactual and Procedural Background

Petitioner Fluor Corporation (here called Fluor–2) is the second of two corporations named “Fluor Corporation.” Fluor–2 was incorporated in the fall of 2000 as the result of a corporate restructuring transaction called a “reverse spinoff.” The preexisting Fluor Corporation (here called Fluor–1) was created in 1924.¹

In the reverse spinoff, Fluor–1 transferred its engineering, procurement, construction and project management services to Fluor–2 as part of a “new strategic direction” to realign Fluor “as a single, highly focused company.” Fluor–1 retained various coal mining and energy operations and renamed itself as “Massey Energy Company.” Fluor–1 and Fluor–2 became independent public companies, with neither having an ownership interest in the other.

Between 1971 and 1986, real party in interest Hartford Accident & Indemnity Company (Hartford) provided comprehensive liability insurance coverage to Fluor–1 through 11 different policies. These policies were invoked when various Fluor entities were sued for injuries arising out of asbestos-containing materials at sites where Fluor–1 allegedly did business.

Since 1985, Hartford has participated in the defense of these asbestos lawsuits. Between 2001 and 2008, Hartford paid defense and indemnity costs in connection with its defense of the asbestos lawsuits, including a defense of both Fluor–1 and Fluor–2.

In 2006, Fluor–2 initiated the underlying coverage action against Hartford to resolve various coverage disputes, including the designation of the applicable policies, the interpretation of the “completed operations” clause, and Hartford's calculation of Fluor's retrospective premium obligations. Hartford cross-complained, raising other coverage issues.

The parties agreed to stay the litigation for several years to pursue settlement negotiations, which apparently stalled.

In August 2009, Hartford amended its cross-complaint to allege new defenses to coverage. Hartford alleged that only Fluor–1 was its named insured on the policies in question and the policies each contained consent-to-assignment provisions prohibiting any assignment of any interest under the policy without Hartford's written consent. Hartford further alleged that neither Fluor–1 nor Fluor–2 “ever sought or obtained Hartford's consent to the purported assignment of insurance rights under the Distribution Agreement.” (Italics added.) Hartford sought a declaration that it was neither obliged to defend nor indemnify Fluor–2 for the subject asbestos claims, and it asked to be reimbursed for defense costs and indemnity payments already made on Fluor–2's behalf.

In February 2011, Fluor–2 filed a motion for summary adjudication to the first and second causes of action of the cross-complaint, based on the asserted invalidity of the consent-to-assignment clauses. Attempting what respondent court called a “preemptive strike,” Fluor–2 contended that the consent-to-assignment clauses were void under an 1872 statute, since recodified as Insurance Code section 520, which permitted assignments, with or without insurer consent, after the relevant “loss” occurred.

Fluor–2 claimed the relevant “losses” occurred at least 15 years before the reverse spinoff in 2000. It argued that Insurance Code section 520 “reflects a legislative pronouncement that once the fortuitous event triggering coverage (the property damage under typical first-party coverage, the ‘occurrence’ under typical third-party liability policies) has happened, the beneficiary of an insurance contract should stand on the same footing as any other [contracting] party entitled to its promisor's performance, and thus have the ability to freely assign such rights.”

Hartford opposed the motion by relying upon the California Supreme Court decision in Henkel, supra, 29 Cal.4th 934, 129 Cal.Rptr.2d 828, 62 P.3d 69, holding that such consent-to-assignment clauses were valid and enforceable until the loss matured into a liquidated sum. “[T]hese facts sort of fit like a hand in the glove with the Henkel case.”

Hartford separately filed its own motion for summary judgment or summary adjudication, but its motion is not part of the record in this writ proceeding. Fluor–2 explained that it opposed Hartford's motion because it “required a ‘fact-intensive inquiry’ as to a number of issues, including whether [Fluor–2] is the ‘mere continuation’ of its predecessor.”

On June 6, 2011, respondent court heard the parties' cross-motions. The court denied Hartford any affirmative relief, noting that Hartford had failed to specify to which causes of action its requested relief was directed. As to Fluor–2, respondent court declined the opportunity to disregard Henkel based on the 1872 statute. “[The Supreme Court] can be dead wrong, but they are still the Supreme Court.”

We denied Fluor–2's petition for writ of mandate to direct respondent court to grant its motion for summary adjudication. Fluor–2 filed a petition for review with the California Supreme Court.

In November 2011, the Supreme Court granted the petition for review and directed us to vacate our order denying mandate and to issue an order to show cause why petitioner's requested relief, namely to grant summary adjudication, should not be granted. We complied with the Supreme Court order in December 2011 and issued an order to show cause.

In February 2012, respondent court stayed all proceedings in the underlying action pending resolution of this writ petition.

In April 2012, Fluor–2 filed a request for judicial notice of various documents, including the code commissioners' notes to the 1872 statute, as well as various briefs in several out-of-state cases. Hartford opposed the request as untimely, among other grounds. We grant the request for judicial notice.

IIThis Court is Duty–Bound to Follow Henkel, Which Does Not Contradict Any Express Legislative Policy

An influential law review article used citation analysis to determine whether and why the California Supreme Court is the most followed state high court in the United States. (See Dear & Jessen, “Followed Rates” and Leading State Cases, 1940–2005 (2007) 41 U.C. Davis L.Rev. 683.)

This writ petition presents a more startling question: Should a recent California Supreme Court decision be followed in California?

Fluor–2 says we can ignore Henkel because the opinion contravenes Insurance Code section 520. According to Fluor–2, “[w]here the common law—even as announced by our ...