Henkel Corp. v. Hartford Accident & Indemnity Co.

MORENO, J.

I dissent. The majority’s decision is contrary to well-settled law and provides an unfair windfall to insurers. The majority’s holding allows an insurer to avoid its obligations on hosts of existing claims by refusing to consent to an assignment of policy benefits, if the insured business has been sold. That is not the law. Instead, the rule is that the right to recover under a policy after a loss has occurred is an asset assignable separate from the policy itself. After a loss, the policy benefits can be assigned without insurer consent, the no-assignment clause notwithstanding. (Greco v. Oregon Mut. Fire Ins. Co. (1961) 191 Cal.App.2d 674, 682-684 [ 12 Cal.Rptr. 802 ] (Greco))

I.

“While the general rule regards liability and indemnity policies as nonassignable personal contracts, assignment is valid following occurrence of the loss insured against and is then regarded as chose in action rather than transfer of actual policy.” (2 Couch on Insurance (3d ed. 1997) § 34:25, *947 p. 34-21.) This rale has been long recognized by courts of this state. Over 40 years ago, the Court of Appeal in Greco stated that “it is settled that the right to recover . . . after loss has occurred is assignable without [insurance] company consent.” (Greco, supra, 191 Cal.App.2d at p. 682 , citing Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 661-662 [ 328 P.2d 198 , 68 A.L.R.2d 883 ] [“it is well settled that [a no-assignment clause] does not preclude the transfer of a cause of action for damages for breach of a contract”].) The holding in Greco was reaffirmed more recently by the Court of Appeal in Westoil Terminals Co. v. Harbor Ins. Co. (1999) 73 Cal.App.4th 634, 641 [ 86 Cal.Rptr.2d 636 ] (Westoil), which stated that Greco “allows for an exception to that rale [that an insurer must consent to assignment] where a loss has already occurred.” (See also University of Judaism v. Transamerica Ins. Co. (1976) 61 Cal.App.3d 937, 942 [ 132 Cal.Rptr. 907 ].)

In addition, courts of other states have agreed that an insured can assign the right to recover for pretransfer injuries without the insurer’s consent, notwithstanding a no-assignment clause. (See, e.g., Imperial Enterprises, Inc. v. Fireman’s Fund Ins. Co. (5th Cir. 1976) 535 F.2d 287, 293 [“the no-assignment clause should not be applied ritualistically and mechanically to forfeit coverage in these circumstances”]; Ocean Accident & Guar. Corp. v. Southwestern B. Tel. Co. (8th Cir. 1939) 100 F.2d 441, 444-445 ; B.S.B. Diversified Co. v. American Motorists Ins. (W.D.Wash. 1996) 947 F.Supp. 1476, 1479 [“Even with an anti-assignment clause in an insurance policy, Washington law recognizes an assignment of coverage for an event or activities preceding assignment”]; Gopher Oil v. American Hardware (Minn.Ct.App. 1999) 588 N.W.2d 756, 763 [“when events giving rise to an insurer’s liability have already occurred, the insurer’s risk is not increased by a change in the insured’s identity”].)

The majority narrows this long-standing rale permitting assignment after the occurrence of a loss by stating that assignment is only valid when a claim against the policy has been “reduced to a sum of money due or to become due under the policy.” (Maj. opn., ante, at p. 944.) The majority concludes that the policy benefits at issue here “had not become an assignable chose in action” at the time of the transfer of the metallic chemicals business from Amchem No. 1 to Amchem No. 2, and therefore the right to recover under the policy could not be assigned without the consent of the insurers. (Ibid.)

It is unclear from what source the majority’s novel conclusion is derived. The majority cites the Court of Appeal decisions in Westoil, supra, 73 Cal.App.4th at page 642 , and Greco, supra, 191 Cal.App.2d at page 682 , for *948 the proposition that benefits under an insurance policy can be assigned notwithstanding a contractual provision barring the assignment of such benefits. Yet the majority ignores the actual rule articulated in these cases, that an insured can assign policy benefits once the loss insured against has occurred.

The majority’s abandonment of the general rule that “assignment is valid following occurrence of the loss insured against and is then regarded as chose in action rather than transfer of actual policy” seems predicated on a misconception of when a party has a “chose in action.” (2 Couch on Insurance, supra, § 34:25, p. 34-21.) The majority equates a chose in action with a claim that has been reduced to a sum of money due or to become due. Under the majority’s view, it seems that a party must file a claim, and this claim must result in a legal finding of liability, for a chose in action to lie.

A chose in action, however, is not necessarily a claim that has been reduced to a sum of money; it is much broader. In California, a chose in action, also known as a “thing in action,” is statutorily defined as “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) (See Black’s Law Dict. (7th ed. 1999) p. 234 [defining “chose in action” as “[t]he right to bring an action to recover a debt, money, or thing”].) A claim need not have been filed, or a judicial determination made, for there to be a chose in action. Instead, only a right to recover need exist. (See, e.g., Krusi v. S.J. Amoroso Construction Co., Inc. (2000) 81 Cal.App.4th 995, 1003 [ 97 Cal.Rptr.2d 294 ] [equating a chose in action with a right to bring a lawsuit].)

As explained below, under the policies at issue in this case, a chose in action is established on the date of the injury, which is when the loss occurs. Therefore, the policy benefits become assignable without the consent of the insurer on the date of the injury, not, as the majority contends, when a claim for this injury has been reduced to a sum of money due or to become due.

II.

The insurance contracts at issue in this case are occurrence-based contracts. In Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645 [ 42 Cal.Rptr.2d 324 , 913 P.2d 878 ] (Montrose), we held that for occurrence-based insurance contracts, “coverage is triggered by damage or injury occurring during the policy period.” (Id. at p. 669.) After coverage is triggered, the insurer owes a duty of defense and indemnification under the policy upon the assertion of such claims. It does not matter whether or not the claims are *949 actually asserted during the policy period. So long as the injury-causing event has occurred during the policy period, coverage is triggered, and a loss has occurred.

In continuous injury cases, such as here, the insured’s actions result in claims of continuing or progressively deteriorating bodily injury or property damage. As we said in Montrose, “bodily injury and property damage which is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods.” (Montrose, supra, 10 Cal.4th at p. 689 .) As we later explained in Aerojet General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 57 [ 70 Cal.Rptr.2d 118 , 948 P.2d 909 ] (Aerojet), “[i]n other words, if specified harm is caused by an included occurrence and results, at least in part, within the policy period, it perdures to all points of time at which some such harm results thereafter.”

In the present case, the claims under the policy are based on injuries to the Lockheed plaintiffs arising from exposure to metallic chemicals during the period between 1959 and 1976. During this period, defendant insurers received premiums to insure against injuries caused by Amchem’s metallic chemical business. Under our holding in Montrose, and reaffirmed in Aerojet, since the injuries occurred during the policy period, coverage for these injuries is triggered, and the loss insured against has occurred. (Montrose, supra, 10 Cal.4th at p. 669.)

Given this settled law, is unclear how the majority’s understanding that the policy benefits are assignable only after they are reduced to a monetary sum can be reconciled with Montrose. (Montrose, supra, 10 Cal.4th at p. 669 .) The majority mentions Montrose only once, in characterizing Henkel’s argument. (See maj. opn., ante, at p. 944.) In determining that the policy benefits at issue in this case were not assignable because the claims had not been reduced to a monetary sum, the majority makes no mention of this controlling case. Yet Montrose makes clear that an insurer’s coverage liability under an occurrence-based policy is determined as of the date of the claimant’s loss or injury, irrespective of when the claim is asserted and reduced to a monetary sum. (Montrose, at p. 669.) This rule is especially important in a continuous injury case, because often a claim for such an injury will not be filed until the policy period that was in effect at the time of the injury has ended.

If the majority’s conclusion is applied beyond the assignment context, an insurer could avoid its obligations even if the policy benefits had not been *950 transferred to another party. For example, suppose an insurer covered Company A from 1990 until 2000. In 1998, Plaintiff is injured by Company A. In 2001, Plaintiff sues Company A to recover for her injury (and the suit is brought within the relevant statute of limitations period). The insurer can argue that Plaintiff’s injury was not covered by the policy, since the claim was not reduced to a monetary sum, and therefore, according to the majority, the right to recover under the policy did not exist until after the policy had expired.

Clearly, this result would contravene the purpose of an occurrence-based policy. For these policies, coverage is established on the date of the event causing the injury. (Montrose, supra, 10 Cal.4th at p. 669 .) Therefore, when the injury-causing event occurs during the policy period, the loss has occurred, a chose in action is established, and the right to recover under that policy is assignable without insurer consent. (Greco, supra, 191 Cal.App.2d at p. 682 .)

III.

The rule permitting assignment of the right to recover for injuries occurring prior to the transfer is consistent with the purpose of a no-assignment clause. In interpreting an insurance contract, courts “read[] the policy’s ‘language in context with regard to its intended function in the policy.’” (Galanty v. Paul Revere Life Ins. Co. (2000) 23 Cal.4th 368, 374 [ 97 Cal.Rptr.2d 67 , 1 P.3d 658 ], citing Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265 [ 10 Cal.Rptr.2d 538 , 833 P.2d 545 ].) “The purpose of a no assignment clause is to protect the insurer from increased liability, and after events giving rise to the insurer’s liability have occurred, the insurer’s risk cannot be increased by a change in the insured’s identity.” (3 Couch on Insurance (2002 supp.) § 35:7, p. 2.) Thus, allowing assignment of pretransfer benefits neither increases the insurer’s risk nor alters the insurer’s defense burden.

The risk insured against does not increase because the insurer’s duty to defend and indemnify relates to an injury or damage which was suffered by the claimant prior to the assignment of benefits to a successor corporation. As the court stated in Northern Ins. Co. of New York v. Allied Mut. Ins. (9th Cir. 1992) 955 F.2d 1353, 1358 (Northern Insurance): “[T]he rationale for honoring ‘no assignment’ clauses vanishes when liability arises from presale activity. [Citation.] Insurers take account of the nature of the insured when issuing a policy. Risk characteristics of the insured determine whether the insurer will provide coverage, and at what rate. An assignment could alter *951 drastically the insurer’s exposure depending on the nature of the new insured. ‘No assignment’ clauses protect against any such unforeseen increase in risk. When the loss occurs before the transfer, however, the characteristics of the successor are of little importance: regardless of any transfer the insurer still covers only the risk it evaluated when it wrote the policy.” (See also Westoil, supra, 73 Cal.App.4th at p. 642 [finding that where the loss occurred during the policy period and the assignment occurred after the loss, “any transfer of the policies . . . did not in any fashion increase the risk to respondents”].)

In addition, the assignment of the right to recover for an injury occurring prior to the transfer does not necessarily change the nature of the burden on the insurer. As the Northern Insurance court stated: “The nature of the risk, rather than the particular characteristics of the defendant, will have the greater effect on defense costs. The extent and character of the defense will turn on the nature of the product itself and the attributes of the firm that manufactured the product. Aspects of the successor firm could affect the defense, but the shape of the defense will be determined largely by the characteristics of the risk originally insured. Admittedly, defense costs could balloon if the successor firm failed to cooperate in the defense. Inasmuch as the successor firm was not a party to the original policy, the risk of noncooperation arguably increases. Yet, the insurer is protected against this risk because it is freed of its defense obligation if the successor firm does not fulfill its duty to aid in the defense.” (Northern Insurance, supra, 955 F.2d at p. 1358 .)

The majority argues that the insurer may face an additional burden if the predecessor corporation still exists or can be revived, because an assignment of the right to recover for a presale injury could obligate the insurer to defend both the predecessor and the successor. (See maj. opn., ante, at pp. 944-945.) This is not the case. If a predecessor corporation assigns its insurance policy rights to a successor corporation, the insurer’s legal obligations would run only to the successor. (See Westoil, supra, 73 Cal.App.4th at p. 642 .) In addition, if there is any dispute about whether or not the right to recover under a policy was assigned to the successor, it can be resolved through a request for declaratory relief, which can be made before the insurance company fulfils any defense obligations. Once the issue of assignment is determined, the insurer’s obligations will be clear and the insurer will not be forced to defend both parties. Thus, an assignment of the right to recover for presale occurrences imposes no new contractual burden on an insurer; the insurer need only defend a single party, the assignee, and only with respect to a risk that it has already agreed, and been paid, to cover.

*952 IV.

The majority’s holding allows insurers to secure a unfair windfall. The Lockheed plaintiffs alleged that their injuries were caused by exposure to metallic chemicals manufactured by Amchem and occurred during the time in which the policies issued by defendant insurers were in effect. The insurers in this case had received premiums to insure against these types of injuries. Yet under the majority’s holding, the insurers will owe no coverage to any party for a risk they promised to insure against and for which they were paid an agreed premium.

Moreover, the majority’s conclusion could restrict corporate restructuring, reorganization, merger, or sale. If an insurance policy contains a no-assignment clause, an insured is barred from assigning the benefits of presale insurance coverage unless a claim has been reduced to a monetary sum, or unless the insurer had breached a duty at the time of assignment. Under the majority’s decision, a predecessor company cannot assign the right to recover for presale injuries that have occurred, but for which no claim has yet been brought, without the consent of the insurer. Yet under our prior case law, liability for presale injuries that have occurred, but for which no claim has been brought, can be transferred to the successor company. (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28 [ 136 Cal.Rptr. 574 , 560 P.2d 3 ].) Even if a successor corporation does not expressly assume the liabilities of its predecessor by contract, as in this case, the successor corporation is still subject to the risk of being sued for the pretransfer torts of a predecessor. This is because liability can, in some cases, be imposed on the successor company as a matter of law, even in the face of a contractual provision excluding the assumption of liability for presale torts. (See Ray, supra, 19 Cal.3d at p. 31 .)

A successor company would not be inclined to assume this risk of liability for the torts of a predecessor without also receiving the benefits of the predecessor’s insurance coverage for presale occurrences. It is highly unlikely that a successor company would be able to obtain insurance coverage for injuries that have already occurred before the successor’s acquisition of the business. Therefore, the only realistic way in which a successor corporation can obtain insurance coverage for the torts of its predecessor is if the predecessor is able to assign its insurance coverage benefits to the successor. The majority’s decision, however, allows insurance companies the ability to veto this necessary assignment of benefits by inserting a no-assignment clause into the insurance policy. Such a rule will have the effect of inhibiting corporate reorganization or sale.

*953 V.

Mergers, sales, and corporate restructurings are commonplace. They should not, in themselves, serve to destroy an insured’s rights to coverage for activities that occurred prior to the merger, sale, or other transaction. Yet this is what the majority concludes. By allowing insurers to veto the assignment of benefits for which coverage has been triggered, but for which a claim has not yet been brought, insurers can retain the premiums paid by the insured while escaping their coverage obligations.

An insurance contract is often an asymmetrical relationship: an insured will have fully performed, paying premiums to the insurer, long before the insurer is called on to perform at all. It makes no sense to say that any part of the insurer’s obligation is destroyed by transactions that have nothing to do with the insured-against events or the insurer’s obligations. If the injuries for which a claim is brought occur during the policy period, the insurer is obliged to cover the injury, and the insured has a right to recover benefits from the insurer. Any subsequent transfer of this right to recover has no effect on the insurer’s contractual obligations. An insurer should not be able to evade these responsibilities by inserting a no-assignment clause into the insurance contract. Unlike the majority, I adhere to the rule, recognized by courts of this and other states, that an insured can assign the right to recover for injuries occurring prior to the transfer without obtaining the consent of the insurer. Therefore, I dissent.