FLUOR v. S.C. (HARTFORD ACCIDENT & INDEMNITY COMPANY)

Petitioner’s Petition for Review

Cal.October 10, 2012

S 2 Q 58 8 9 SUPREME COURT FILED OCT 10 2012 Case No. S IN THE SUPREME COURT Frank A. McGuire Clerk OF THE STATE OF CALIFORNIA Deputy FLUOR CORPORATION, Petitioner, Vv. SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF ORANGE Respondent; HARTFORD ACCIDENT & INDEMNITY COMPANY, Real Party In Interest. After a Decision by the Court of Appeal, Fourth Appellate District, Division Three Civil Case No. G045579 Following a Grant of Review and Transfer by the Supreme Courtof California, Case No. S 196592 Petition from the Superior Court ofthe State of California for the County of Orange Case No. 06CC00916, Honorable Ronald Bauer,Presiding PETITION FOR REVIEW LATHAM & WATKINS LLP BROOK &. ROBERTS (STATE BAR NO. 214794) JOHN M. WILSON (STATE BAR NO. 229484) 600 WEST BROADWAY,SUITE 1800 SAN DIEGO, CALIFORNIA 92101-3375 (619) 236-1234 @ FAX: (619) 696-7419 Counsel for Petitioner Fluor Corporation Case No. S IN THE SUPREME COURT OF THE STATE OF CALIFORNIA FLUOR CORPORATION, Petitioner, V. SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF ORANGE Respondent, HARTFORD ACCIDENT & INDEMNITY COMPANY, _ Real Party In Interest. After a Decision by the Court of Appeal, Fourth Appellate District, Division Three Civil Case No. G045579 Following a Grant of Review and Transfer by the Supreme Courtof California, Case No. S 196592 Petition from the Superior Courtof the State of California for the County of Orange Case No. 06CC00916, Honorable Ronald Bauer, Presiding PETITION FOR REVIEW LATHAM & WATKINS LLP BROOK 3. ROBERTS (STATE BAR No.2 14794) JOHN M. WILSON (STATE BAR No. 229484) 600 WEST BROADWAY,SUITE 1800 SAN DIEGO, CALIFORNIA 92101-3375 (619) 236-1234 @ Fax: (619) 696-7419 Counsel for Petitioner Fluor Corporation II. Il. IV. TABLE OF CONTENTS ISSUES PRESENTED... cccccccssessesseeseseeesecsesesssessasscsscsssussesaeeaeears ] A. Issues For Which This Court Granted Review And Transferred to Court of Appeal ............cccecees l B. Additional Issue Raised By Court of Appeal’s Decision ........ccccesssssssssensessesensesecsessesecsessescsessesecsees 1 WHY REVIEW SHOULD BE GRANTED.........cccccceessessesescesseseees2 STATEMENTOF THE CASE... cccccccccssssscesssscescvssssessvscsscreeneserseees 6 LEGAL DISCUSSION |... ciccccessesssssssessessecsessesesesecsesssssesssensasees 11 A. Section 520, A “General Rule Governing Insurance,” Applies to Third-Party Liability POLICIES ooo cee eeeseeeeeceseeseeseesceecessecseceecsascsecssecessvssesscssseseatersaces 11 B. Section 520 Supersedes Henkel’s Conflicting Common-Law Holding............ccccsecesesereeeeeees 15 l, Statutory Law Controls Over CommonLaw.............. 15 2. Henkel Did Not Measure the Enforceability of Anti-Assignment Clauses Against the “Loss” Test Mandated by Section 520 .......cccceeecsessesreerseenes 16 C. This Court Should Confirm that Anti- Assignment Clauses in Occurrence-Based Third-Party Liability Insurance Policies are Void After the Coverage-Triggering “Loss” Has “Happened”ooo... see sceessssssessesseseesessesseecnessessssscsvsoessenens 19 D. Significant Harms Flow from Failing to Enforce Section 520... cccccsessssssscsssesssssssecsscssssessensessteseaees24 CONCLUSIONuueeeccsccesssssssesesessessecscsscesscsesscsssusscsecsesecnevasenavens 25 TABLE OF AUTHORITIES CASES Arenson v. Nat. Auto. & Casualty Ins. Co. (1955) 45 Cal.2d 81 occcccsscesessscssescssecssesessssecsscsesssscessevsseesseesereanes 5,13 Aronson v. Frankfurt Accident and Plate Glass Ins. Co. (1908) 9 CalApp. 473 vu. cccscscsessessessscseccsssesevsesscsssscssesesvseessveseecsessvevas 15 Cal. Casualty Management Co. v. Martocchio (1992) 11 Cal.App.4th 1527 oo ccecccsessscssseesssscscecsscssvsvssessssvseceeeeteess 13 California Bankv. Schlesinger (1958) 159 Cal.App.2st-Supp. 854 oo. cccccsssesssescscseessssessescssseevsesesses 16, 19 Chu v. Canadian Indemnity Co. (1990) 224 CalApp.3d 86 ....cccccccssccssssssesscsenessecssscsscssccsvsvesssvetecseevaras 23 Downey Venture v. LMIIns. Co. (1998) 66 Cal.App.4th 478 oo... cescessssssesstessscsesessescsssssscsessscscsvseeesatees 13 Employers Ins. Co. of Wausau v. Travelers Indemnity Co. (2006) 141 CalApp.4th 398 oo... ccccescsecsscsessssssscsssscssscscevsserevscsecseatanss 22 Evans v. Pacific Indemnity Co. (1975) 49 Cal.App.3d 537 .oiccssccsscsesssecssssstscsecsesessvssessvessesseveceserenns 5, 14 Franklin Capital Corp. v. Wilson (2007) 148 Cal.App.4th 187 occecceescssseseeesscssssesessscssssvsesssssvseeesenseras 16 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal4th 934 oo cceccsccsccsssessessesscsssesssesssecsecsssersenees 1, 2,3, 18 In re Thorpe Insulation Co. (C.D. Cal. Sept. 21, 2010, No. CV 10-1493) 2010 U.S. Dist. LEXIS 104196, revd. on other grounds, Motor Vehicle Casualty Co. v. Thorpe Insulation Co. (9th Cir. Cal. 2012) 677 F.3d 869............ 18 Internat. Rediscount Corp. v. Hartford Accident & Indemnity Co. (D. Del. 1977) 425 F.Supp. 669 ......cccccccccsscscesssesscsssscssevscscsscarsevestessevansens 8 Myers v. City & County ofSan Francisco (1871) 42 Cal. 215vce 16 il Negri v. Nationwide Mutual Ins. Co. (N.D. W.Va. Oct. 24, 2011, No. 5:11cv3) 2011 U.S. Dist. LEXIS 123083. ceessessccssesssescsersessectetsessecsssesssssssssssessessusseesscesecsessstsusscosasenseaes 18 O’Grady v. Super. Ct. (2006) 139 Cal.App.4th 1423 ooo. cccscsecsesscseesscsesesseecssssesscesesssnessserasers 14 Ocean Accident & Guar. Corp. v. Southwestern Bell Telephone Co. (8th Cir. 1939) 100 F.2d 441 occccccsccsecsecseescsessessevscsssscsssssssesssaceeees 15 R.L. Vallee, Inc. v. Am. Internat. Specialty Lines Ins. Co. (D.Vt. 2006) 431 F.Supp.2d 428 occccccsccscsscsssseeseecsevsssscsssssssesseseesaeeas 8 Sandburg Fin. Corp v. Nat. Union Fire Ins. Co. (S.D. Tex. July 25, 2011, No. H-10-2332) 2011 U.S.Dist. LEXIS 81398eeesaeeecacecssessesseccesaesneeesseeesseeesseseaseessuseresesessuesauesestesuseeensenss 18 Smith v. Buege (W.Va. 1989) 387 S.E.2d 109.cccseccescessesssescscsessssssescssssesseesecetetsess 8 State v. Continental Insurance Co. (2012) 55 Cal.4th 186 oo. eccscssscssesssscsscseseescsesscscsscseecsesssscrevesnesaees 19, 21 Waller v. Truck Ins. Exenange, Inc. (1995) 11 Cal4th 1 oocceecsecssesesesseeececsecssesecsesssecssssecscessssssessereeees 13 Westoil Terminals Co. v. Harbor Ins. Co. (1999) 73 Cal.App.4th 634 oo. ccccccssscesecssesesscssesevsesssesecsessersessverees 21, 22 STATUTES Cal. R. Ct. 8.500(D)(1) oo. ceccceeseessseeesesseseecsesecssseseessecssssssssastecsueecenses 6, 15 Civ. Code, § 22.1 cic cecsssscesscsessssessecsecsessecsssscsssecsssessesecsevsseseesvacesessasaces 15 Civ. Code, § 4 oi ceececccss: sssscsessecsscsecssecsecsssssssseesevseevssnecsvasesevsueseessasessenses 16 Code Civ. Proc., § 1897 oc cccccccesssssssssssssssessssessccsssscssssuessevsevsevscusereeeaseans 15 Code Civ. Proc., § 1899 occccccccscsscssssscsscssscssssssecssessacessectsvsessevssteesaseaseees 15 Ins. Code, § 108ciccccsssccccsccccccessssccesscesssseseetsseseeevsvesssssesersuseeseeeeece 20 Ins. Code, § 533 we eeceeecesssseersessssesecsecsecsscesesessssessesssessseesenseases 5, 10, 13, 14 Ins. Code, § 520 oeeeessscsssssseesssssscessesesscessssesssscssvscaeesasoevsecsacaueseens passim ill OTHER AUTHORITIES Code Comnns., note foll. Civ. Code, § 2599 (1st ed. 1872, Haymond & Burch, Commrs.-annotators) Vol. II, p. 152.0...eteeeesteressoneesnanecs 6 Stempel, Assessing the Coverage Carnage: Asbestos Liability and Insurance After Three Decades ofDispute (2006) 12 Conn.Ins. L.J. 349, 459eecnecesneetesteesaessesseeessessesesaessssesseesesesseseesessseauesestenes 18 iv I. ISSUES PRESENTED A. Issues For Which This Court Granted Review And Transferred to Court of Appeal’ 1. Should this Court reexamine its decision in Henkel Corp.v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 (“Henkel”) regarding the enforceability of anti-assignmentclausesin third-party liability policies, because it conflicts with Insurance Code section 520 -- whichspecifically addresses that important issue, but was notcalled to the Court’s attention in Henke/? 2. Are anti-assignmentclausesin third-party liability policies unenforceableafter a “loss.has happened,” as provided by Insurance Code section 520, or do such clauses remain enforceable even after “loss”if the insured’s claim against ihe insurer has not yet maturedinto a “chose in action,” as this Court ruled in Henkel? B. Additional Issue Raised By Court of Appeal’s Decision” 3. Is Insurance Codesection 520 -- a “General Rule Governing Insurance”-- applicable to third-party liability policies? ' (See Fluor Corporation’s Petition for Review, Case No. S 196592 [filed September 19, 2011], at p. 1; Attachment A [Order granting Petition for Review, dated November 16, 2011].) 2 (See Fluor Corp. v. Superior Court (2012) 208 Cal.App.4th 1506, attached hereto as AttachmentB.) II. WHY REVIEW SHOULD BE GRANTED This Court previously granted Fluor Corporation’s (‘Fluor’) Petition for Review andtransferred the case to the Court of Appeal to consider a pivotal questicn concerningthe assignability of rights under third-party liability insurance policies: Namely, whether this Court’s decision in Henkel discussing the enforceability of anti-assignment clauses should be reconsidered because the Court was not made aware of Insurance Code section 520 -- a statute that voids such clauses after the insured “loss happens.” Henkel construed a typical anti-assignment provision thatis standard in insurancepolicies: Assignmentofinterest under this policy shall not bind the Company until its consent is endorsed hereon. (Henkel, supra, 29 Cal.4th at p. 943; see, e.g., App. Ex. 2, at p. 1045.) Unawareofthe insurancestatute limiting their reach, Henke/ held that these anti-assignmentclauses remain enforceable even after the coverage- triggering loss happens,and continue to bar assignments until the policyholder’s claim has been reducedto a “chosein action,” i.e. “a sum of money due or to become due underthe policy.” (Henkel, supra, 29 Cal.4th at p. 944.) Dictating a contrary rule, section 520 makes the happening of “loss”-- not the maturing of a “chose in action”-- the litmustest for assignability of insurance: > The term “App. Ex. _,atp.__” refers to the consecutively paginated exhibits submitted to the Court of Appeal with Fluor’s Petition for Peremptory Writ of Mandate, filed August 1, 2011. An agreement not to transfer the claim ofthe insured against the insurer after a loss has happened,is void if made before the loss[.] (Ins. Code, § 520 [emphasis added].) Without the benefit of section 520’s guidance, Henkel mistakenly adopted a commonlawrule at odds with the governingstatute. | The parties and amici curiae who appeared in Henkel should have brought section 520 to the Court’s attention. However, there is no evidence in the Henkeldecision,or in the recordofthat case, suggesting that the Court was awarethe Legislature had enacteda rule limiting the effect of anti-assignmentclausesin insurance policies. Henkel thus represents a rare lapse of the adversary system, in which thelitigants failed to call the courts’ attention to a controlling statute. Although section 520 would not have changedtheresult for the Henkelparties-because the Court also found that they did not intend to assign the insurancerightsat issue, the statute has great importance for many other insureds with long-tail losses under occurrence-basedliability policies. Virtually none of the assignmentsofliability insurancerights, which often accompanythe purchase andsale of corporate assets, can survive scrutiny under Henkel’s “chose in action” standard. Such assignments are typically madeyears or decadesafter the policy expires and the coverage-triggering loss has happened. Nevertheless,if the assignment occurs before an actual judgmentis entered against the insured (which rarely happens), California insurers now insist that the assignmentis barred under Henkel, and no coverageexists for the very losses they collected premiumsto insure. By announcing rule that allowsinsurersto restrict assignments even after the “loss” occurs, Henkel unknowingly undermined a key protection provided to insureds under section 520. Recognizing the importance of re-examining Henkel, this Court unanimously granted Fluor’s first Petition for Review, and transferred the case to the Court of Appeal to construe and apply section 520 in thefirst instance. (See Attachment A.) On remand, however, the Court of Appeal did not substantively address the issues presented in Fluor’s Petition, nor apply section 520 to the occurrence-basedliability policies at issue in this case. Instead, the Court adopted a construction of section 520 that neither party espoused. Although Hartford‘itself acknowledged that section 520 setsforth the test for determining the assignability ofliability policies after a “loss happens,” the Court determined thatthe statute is only applicableto first- party property policies which were in effect more than 125 years ago. Refusing to question the applicability of Henkelin light of section 520, the Court held that section 520 “can have no bearingas a ‘clear’ or ‘controlling’ legislative expression on the assignability ofliability insurance for the simple reasonthat liability insurance did not exist” at the time section 520’s predecessor statute was enacted aspart of the Civil Code in 1872. (See Attachment B [Fluor Corp. v. Super. Ct., supra, 208 Cal.App.4th at p. 1509].) The Court’s rulingis thus predicated on the notion that Insurance Codeprovisionstracing their lineage to the original Civil Code -- even thoselater adopted as “General Rules Governing Insurance” when the Insurance Code was formulated in 1935 -- do not apply to third-party liability policies. RealParty in Interest Hartford Accident & Indemnity Company (“Hartford”). The Court of Appeal’s sua sponte interpretation of section 520 is fundamentally flawed, and inconsistent with decadesofprior case law in which California courts have applied other sections from the same chapter of the Insurance Codetoliability policies. There is nothing in the language, purposeorhistorical developmentof section 520 that limits its application to first-party policies conceived in the 1800’s. Like other sections of the “General Rules Governing Insurance” with the same statutory lineage as section 520, these laws currently apply to all insurance, includingliability policies. For example, section 533, which prohibits policyholders from obtaining insurance for“a loss caused by the wilful act of the insured,” was also originally enacted as part of the Civil Code in 1872, and later codified in the Insurance Code in 1935. (Ins. Code, § 533.) Although section 533 may have begunlife in the Civil Code before liability policies were invented (like section 520), courts have held for more than fifty years that it applies with equal force to all insurancepolicies, including third-party liability policies. (See Arenson vy. Nat. Auto. & Casualty Ins. Co. (1955) 45 Cal.2d 81, 84; Evans v. Pacific Indemnity Co. (1975) 49 CalApp.3d 537, 541.) | The Court of Appeal was understandably reluctant to disturb this Court’s decision in Henkel without express guidance. Asthe Justices commented during oral argument, “this case is going” to the Supreme Court where section 520 “will undoubtedly be considered.” (See Request for Judicial Notice [“RJN”], Ex. 1 at pp. 6:21-7:21.) However,in its effort to protect Henkel from thestatute’s reach, the Court of Appeal compounded the error by threatening another body ofsettled case law, anddisregarding the statute’s intended purpose. Asits legislative history shows, section 520 was motivated by a strong policy against forfeiture of insurance benefits: It outlawed the “grossly oppressive” practice of insurers attempting to avoid assignmentsafter the insured risk happens.” Yet thatis precisely the result Hartford seeks here by relying on Henkel. The evident conflict between section 520, which measuresthe enforceability of anti-assignment clausesin liability policies based on when “loss” occurs, and the commonlaw rule of Henkel, which measures enforceability based on when a “chose of action” maylater arise, should be resolved on the merits. Fluor respectfully requests that its Petition for Review be granted. (See Cal. R. Ct. 8.500(b)(1).) I. STATEMENTOF THE CASE Fluor, a publicly owned engineering, procurement, construction, maintenance andproject management (“EPC”) company,is the plaintiff and cross-defendantin an action in Respondent Superior Court, entitled Fluor Corp., et al. v. HtfordAccident & Indemnity Co., Orange County Superior Court Case No. 06cc00016. Real Party in Interest is defendant and cross-complainant Hartford Accident & Indemnity Company. This case concerns Fluor’s claims for coverage undera series of comprehensive generalliability insurancepolicies issued by Hartford between 1971 and 1985 (the ‘“Policies”), to insure “FLUOR CORPORATIONandanysubsidiary oraffiliated companies, corporations, organizations orother entities as may exist or may be formedor acquired > (See Fluor’s Request for Judicial Notice in support of Reply to Answer to Petition for Peremptory Writ of Mandate, Ex. A [Former Civ. Code, § 2599 (1872); Code Cummrs., note foll. Civ. Code, § 2599 (1st ed. 1872, Haymond & Burch, Commrs.-annotators) Vol. II, p. 152].) The Court of Appeal granted Fluor’s Request for Judicial Notice. (See Attachment B [Fluor Corp. v. Super. Ct., supra, 208 Cal.App.4th at p. 1511].) hereafter.” (E.g., App. Ex. 2, at p. 28.) The Policies were written on an “occurrence”basis, providing that Hartford will defend its insureds against suits alleging bodily injury “caused by an occurrence.” (/d. at p. 31.) “Occurrence”is defined in the Policies as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the Insured.” (/d. at p. 89.) Fluor seeks coverage underthe Policies for “long tail” asbestos bodily injury claimsarising outof its historical EPC operations. Thefirst of the underlying asbestos suits against Fluor andits subsidiaries and affiliates (the “Fluor Insureds”) was filed in 1985. The Fluor Insureds are now actively defending approximately 2,500 asbestos lawsuits in California and otherjurisdictions. In 2000, Fluor Corporation undertook a corporate restructuring (the “Reverse Spinoff’) that assigned the insurancerights andobligations associated with the asbestos suits -- including ongoingretrospective premium payments owedto Hartford -- to this Petitioner, a newly-formed company operating under the same name and continuing the same EPC business Fluor had conducted for many decades. After advising Hartford of the transaction in early 2001, the “new” Fluor Corporation continued to work handin hand with Hartford to defend and resolve the asbestossuits, as it had for the previous 15 years. Hartford continued to defend the “new” Fluor Corporation, make defense and indemnity payments onits behalf, and invoice and collect retrospective premiumsfrom this entity. This Petition arises because -- three years into this case, which Hartford had alwayslitigated on the basis that Fluor wasa properplaintiff -- Hartford changed course and began to argue that it had been paying benefits to a party that is not insured underthe Policies. In August 2009, Hartford filed a cross-complaint, alleging for the first time that Fluor lacked any right to claim coverage underthe Policies because of the standard anti- assignmentclauses they contained, which provide that: Assignmentofinterest under this policy shall not bind the Companyuntil its consent is endorsed hereon. (See, e.g., App. Ex. 2, at p. 1045.)° Hartford’s new cross-complaint asserted causes of action based on the contention that the Reverse Spinoff was an “assignment of insurance rights” to Fluor made without consent. (App. Ex. 1, at p. 8 [9 44].). Specifically, Hartford alleged that, although Fluorand its predecessor had agreedto “transfer the assets andliabilities” relating to the historic EPC business, including “all assets and liabilities related to any insurance ~ policies” which covered the EPC liabilities, Fluor “[n]ever sought or obtained Hartford’s consent to the purported assignmentof insurance rights[.]” (Ud. at pp. 7-8 [J 40-44].) In February 2011, Fluor moved for summary adjudication of Hartford’s First and Second Causes of Action, seeking to establish that the assignmentof insurance rights to Fluor alleged in Hartford’s cross- complaint was effective regardless of Hartford’s consent. (App. Exs.3, 8.) ° The Hartford anti-assignmentclause here is identical to the Hartford anti-assignmentclause at issue in Henkel (see Henkel, supra, 29 Cal.4th at p. 943), and in the vast majority of anti-assignment cases considered by American courts for decades. (E.g., R.L. Vallee, Inc. v. Am. Internat. Specialty Lines Ins. Co. (D.Vt. 2006) 431 F.Supp.2d 428, 434; Smith v. Buege (W.Va. 1989) 387 S.E.2d 109, 116; Internat. Rediscount Corp.v. Hartford Accident & Indemnity Co. (D. Del. 1977) 425 F.Supp. 669, 672.) The assignmentalleged in Hartford’s cross-complaint was made more than a decade after the relevant “loss” -- namely, the asbestos bodily injury constituting the “occurrence”triggering the Policies -- happened. (App. Ex. 8, at pp. 2748-2753.}. Therefore, Fluor contendedthat section 520 voids the anti-assignmentprovisionsof the Policies. Hartford opposed Fluor’s motion based on Henkel.’ On June 27, 2011, the Superior Court denied Fluor’s motion for summary adjudication “App. Ex. 37), accepting Hartford’s argumentthat “this court is duty-bound to apply Henkel, not [section] 520.” (App. Ex. 36, at pp. 10911-10912.) The court declined to apply section 520, stating thatit simply did “not have th[e] luxury”of disregarding Henkel. (App. Ex. 37, at p. 10941.) Fluor timely petitioned the Court of Appeal for writ review. The Court issued a Palmanotice, inviting Hartford to submit an informal response. However, on September8, 2011, the Court of Appeal summarily denied the petition. Accordingly, Fluor timely petitioned the Supreme ’ Hartford separately moved for summary judgmentchallenging the Fluor Insureds’ rights to claim benefits under the Policies. Hartford’s motion, whichis not at issue in this proceeding, focused on whether Fluor was a “named insured” underthe Policies. The Fluor Insureds opposed Hartford’s motion by pointing to a series of fact-intensive issues concerning Hartford’s consistent course of conduct that would have to be resolvedas part of Hartford’s claim. For example, because Hartford acknowledged andtreated Fluor as an insured for nearly a decade after learning of the purported assignment(including through more than three years of the instant coveragelitigation), Fluor asserted several claims and defenses based on estoppel, waiver, modification and effective consent. (See App. Ex. 11, at pp. 3510-3512; App. Ex. 13, at pp. 4898- 4901 [§] 12-24].) The Superior Court denied Hartford’s motion. (App. Ex. 37.) Noneofthose factual issues will need to be resolved if Fluoris correct that section 520“void[s]” Hartford’s anti-assignmentclausesat the time a “loss happens.” (Ins. Code, § 520.) Court for review on September 19, 2011. On November 16, 2011, this Court granted Fluor’s Petition for Review, and transferred the case back to the Court of Appeal with directions to vacate its order denying mandate and issue an order to show cause to Respondent Superior Court. (See Attachment A.) The Court ofAppeal heard argument from the parties on July 24, 2012. (See RJN, Ex. 1.) On August 30, 2012, the Court of Appeal issued a decision denying Fluor’s Petition for Writ of Mandate. (See Attachment B.) Rather than addressing the issues in Fluor’s Petition for which review had been granted, the Court’s published decision adopted an interpretation advocated by neither side: The Court held that despite its inclusion in general insurance statutes, section 520 applies only to the limited category of first-party property policies and doesnot applyto third-party liability policies. The Court reached this unprecedented result despite the fact that other critical laws with precisely the samestatutory lineage -- such as the pro-insurerrule of Insurance Code section 533 -- unquestionably apply to third-party liability policies. As detailed below, the Court of Appeal’s faulty analysis not only leaves unansweredthe issues presented for review, but it compoundsthe legal confusion by upending settled expectations that general insurance lawsayply to first- and third-party policiesalike. While this appeal was wending its way through the appellate courts, every issue that was not dependent on the outcomeofthis Petition was resolved through a benchtrial, and the underlying case is awaiting resolution of the appellate process. The Court should resolvethecritical legal issues at the heart of Fluor’s previously-grantedPetition, and provide certainty that, under Insurance Code section 520, anti-assignmentclauses 10 are invalid after the insured “occurrence”or “loss” happens, andliability policies may then be assigned without insurer consent. IV. LEGAL DISCUSSION A. - Section 520, A “General Rule Governing Insurance,” Applies to Third-Party Liability Policies Hartford concedes that whenthe “loss happens,” anti-assignment clausesin liability policies are void as a matter of law. Indeed, Hartford framed “the right question” for the appellate courts to consider: Whatis “the appropriate scopeofthe post-loss exception for an assignmentof rights undera third- party liability policy after a loss has happened?” (Answer-Writ, at p. 6; see also id. at p. 43 [“the issue is when loss happens” (italics in original)].)° Section 520 provides the answer. Thestatute is found in Division 1 of the Insurance Code, “nich sets forth the “General Rules Governing Insurance”that apply to all insurancepolicies, including the liability policies at issue here and in Henkel. It is the first provision found in Chapter 6 of that Division, which chapteris entitled “Loss.” Although the statute’s roots trace backto the original Civil Code of 1872, it was enacted as section 520 when the Insurance Code was adopted in 1935, and then amended in 1947 to ensure consistency with provisions of the Code dealing with life and disability insurance. The Legislature has since reenacted section 520 annually without change. “Answer-Writ”refers tothe “AnswerofReal Party in Interest Hartford Accident and Indemnity Companyto Petition for Peremptory Writ of Mandate or Other Appropriate Relief Filed By Fluor Corporation,”filed with the Court of Appeal on February 8, 2012. 1] Despite its longstanding status in the Insurance Code, section 520 was not considered in Henkel, apparently becausetheparties -- including Hartford-- failed to bringit to the courts’ attention.’ Reluctant to acknowledgethis lapse of the adversary process, the Court of Appealin this case attempted to explain awaythe error based on a new theory notasserted by either party. According to the Court, the reason no onecited the statute in Henkel was becausesection 520: can have nobearing 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. (Attachment B [Fluor Corp. v. Super. Ct., supra, 208 Cal.App.4th atp. 1509].) Not even Hartford advocated this position, and with good reason: The Court of Appeal’s conclusionis flatly contradicted by decades of California jurisprudence.'° This Court has long recognized that Insurance The available record cf the Henkelaction -- includingthebriefs in the Court of Appeal following the trial court’s summary judgmentruling, and ultimately the briefs of the parties and the several amici curiae appearing on both sidesin this Court -- reveals that section 520 was never cited to any cour: considering the action. (See App. Ex.5,at pp. 2048-2533.) Hartford has never explained its failure to cite the statute to the Henkel courts, notwithstanding the duty ofits counselto raise controlling authority, favorable or unfavorable. Hartford has argued since the issue was first presented to the Superior Court that the question is not whether section 520applies to liability policies, but how it snould be applied in that context. (See App. Ex. 20 [Hartford’s Opposition to Fluor’s Motion for Summary Adjudication, filed April 18, 2011], at p. 9916 [“Section 520 and the cases that apply its commonlawprinciple deal with the‘loss’ that arises underthe insurance policy in question, since thatis all that the insured can assign to someoneelse. [.. .] In the context of Section 520,it is clear that ‘loss’ hasits ordinary meaning of‘the insureds’ liability.’”]; Answer- 12 Code section 533 -- a Statute with the samelineage as section 520 -- applies to all insurance policies in California, including liability policies. Section 533 declares the public policy of the State not to insure policyholders against the consequences oftheir willful conduct. It appears in the same Division (“General Rules Governing Insurance”) and Chapter (“Loss”) of the Insurance Code as section 520. Similarly, it was originally codified as section 2629 of the Civil Code, and has remained substantively unchangedsince then, even as it was adopted into the Insurance Codein 1935." Asthis Court has repeatedly held, Section 533 is an implied exclusionary clause that governsall policies in California, including third- party liability policies. (See Arenson, supra, 45 Cal.2dat p. 84 [“Section 533 of the Insurance Code ... codifies the general rule that an insurance policy indemnifying the irsured againstliability due to his own wilful wrong is void as against public policy... .”]; Waller v. Truck Ins. Exchange, Inc. (1995) 1 Cal.4th 1, 18 [“[B]y statute, and as a matter of public policy, the insurer may not provide coverage for willful injuries by the insured against a third party. (Ins. Code, § 533.)”].) Writ at p. 38 [“[A] restriction on assignmentafter a loss will not be enforced.”]; id. at p. 39 [“[N]otwithstanding a consent-to-assignment provision, the right to recover undera policy is freely transferable after a loss.”’]; id. at p. 43 [“the issue is when loss happens”(italics in original)].) (See Cal. Casualty Management Co. v. Martocchio (1992) 11 Cal.App.4th 1527, 1531 [‘Insurance Code section 533 has existed without substantive changein the law ofthis state since it was codified as Civil Code section 2629 in 1873-1874.”]; Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 499, fn. 30 [“The first clause of [now section 533], exonerating an insurer ‘for a loss caused by the wilful act of the insured,’ has survived without amendmentsinceits enactment in 1872.’’].) 13 Courts have previously reviewed the historical development of section 533 -- which parallels the developmentof section 520 -- and explained whyit must apply toliability policies: Plaintiffs next contend that section 533 of the Insurance Code should not apply to liability insurancepolicies at all. At the urging of both parties in their excellent briefs on the subject, we have considered the historical background of insurance development generally and of section 533 of the Insurance Codein particular. It is significant that the first clause of section 533 of the Insurance Code, providing that an insurer is not liable for a loss caused by the wilful act of the insured, has remained absolutely unchanged since its first enactment as section 2629 of the 1872 Civil Code. (See History and Developmentof Insurance Law in California, Introduction to West's Cal. Ins. Code, p. XLI.) An amendment in 1873 made no changein the provisions with which weare here concerned. There were no other amendments. The provision was placed into the Insurance Code unchanged in 1935, and it has remained unamendedin the succeeding years. In this long span of time, many changeshavetaken place in types and formsof insurance and the Legislature was aware of these. Having made no changesin the law in question, the Legislature obviously intendedit to continue to apply in accordance with its clear and unambiguous wording. (Evans, supra, 49 Cal.App.3d at p. 541.) Under the Court of Appeal’s decision here, the foregoing authorities are erroneous and should be overturned “‘for the simple reasonthatliability insurance did not exist in 1872.” However,the fact thatliability insurance may not have existed in 1872 is of no moment. Courts do not assumethat “the Legislature was prescient enough”to “exclude”from the scopeofits statutory commandsthings which had not yet comeinto existence. (O’Grady v. Super. Ct. (2006) 139 Cal.App.4th 1423, 1461.) Thatis especially true in this context, since the Legislature adopted section 520 as 14 a “General Rule[{] Governing Insurance” whenit enacted the Insurance Code in 1935 -- a time whenliability insurance was well known. (See Aronson v. Frankfurt Accident & Plate Glass Ins. Co. (1908) 9 Cal.App. 473; Ocean Accident & Guarantee Corp. v. Southwestern Bell Telephone Co. (8th Cir. 1939) 100 F.2d 441, 444-445.) There is simply no authority to support the novel proposition that section 520 is limited to “marine, fire, and property damage”policies, while section 533 (which has virtually identical history) is not. Yet this is precisely the irreconcilable result upon which the Court of Appeal’s denial of Fluor’s Petition for Writ of Mandate is necessarily based. Review should be granted to ensure consistency in the Court’s jurisprudence, and to protect against the unintended adverse consequencesthat would flow from the Court of Appeal’s decision. (Cal. R. Ct. 8.500(b)(1).) B. Section 520 Supersedes Henkel’s Conflicting Common- Law Holding 1. Siatutory Law Controls Over Common Law There can be nolegitimate dispute that section 520 governs liability insurance policies. Accordingly, the Court of Appeal was obliged to apply the statute to Fluor’s Petition, even if it compelled a different result than this Court reached in Henkel applying the commonlaw. “The will of the supreme poweris expressed: (a) By the Constitution; (b) By Statutes.” (Civ. Code, § 22.1.) “The organic law is the constitution of governmentandis altogether written. Other written laws are denominated statutes. The written law ofthis State is therefore contained its Constitution and statutes . . .” (Code Civ. Proc., § 1897.) Judicial decisions are “unwritten law.” (/d., § 1899.) 15 It is axiomatic that when a common-law decision conflicts with a statute, the statute takes precedence. (E.g., California Bank v. Schlesinger (1958) 159 Cal.App.2d Supp. 854, 865 [“[S]tatute law must control whether[] cases are in harmonytherewith or not.”].)'* As the Civil Code provides: “The [C]ode establishes the law ofthis State respecting the subjects to whichit relates[.]” (Civ. Code, § 4.) If the adversary process does not call a controlling statute to the courts’ attention and the common law develops in ignorance ofthe legislative rule, California courts are duty-bound to promptly correct the error. (See Myers v. City & County ofSan Francisco (1871) 42 Cal. 215, 217 [“The statute supersedes the commonlawrule, and must control.”}.)'° This ensures the integrity of the judicial system. With that aim, this Court should reconsider Henkelin light of the protection that section 520 provides to Fluor and other claimants. 2. Henkel Did Not Measure the Enforceability of Anti-Assignment Clauses Against the “Loss” Test Mandated bySection 520 Henkel plainly did not analyze the validity of anti-assignment clausesin the terms required by section 520. Instead, the majority and "2 The Court of Appealincorrectly reversed this rule. (See Attachment B [Fluor Corp. v. Super. Ct., supra, 208 Cal.App.4th at p. 1513 (“We have neither the powernortheinclination to reverse Henkel.” [emphasis added])].) '> (See also Franklin Capital Corp. v. Wilson (2007) 148 Cal.App.4th 187, 193, 210 [““While the case law . . is extensive, we must rememberthat the right . . . is set forth in a statute, and all permutations of circumstances on the subject flow from that statute... . [{] [A different rule] might be an excellentjudicial policy and indeed we might adoptit ourselves if writing in vacuum. Butit’s not what the Legislature said.”’].) 16 dissent agreed on the universal commonlaw principle that, at some point, anti-assignmentprovisions in insurance policies become unenforceable regardless of whether theinsurer consents. However, the Justices parted ways on whetherthatline should be drawnat the point when the coverage- triggering “loss” happens,or later when the policyholder’s claim against the insurer is subsequently “reduced to a sum of money dueor to become due underthe policy”(i.e., a “chose in action”). (Henkel, supra, 29 Cal.4th at p. 944; compare id. at p, 947 [dis. opn. of Moreno,J.].) That common- law debate between the majority and dissent should have beenirrelevant, because section 520 conclusively drawstheline at the time the loss happens: An agreementnot 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.) Although the time of “loss” is dispositive under section 520, the word “loss”does not appearonce in the Henkel majority opinion. (See Henkel, supra, 29 Cal.4th at pp. 938-944.) This is unsurprisingin light of the majority’s decision to reject the commonlawrule urged by Justice Moreno(in dissent) and justice Croskey (at the Court of Appeal) -- that “loss” is the proper benchmark for measuring the enforceability of anti- assignment clauses. The majority declined to analyze the question ofwhen anti-assignment clauses becomeinvalid in terms of “loss” becauseit concluded that when a “loss happens” was immaterial to when a “chosein action”laterarises. Courts that have-considered Henkel in determining whenanti- assignment clauses become unenforceable recognize that the Supreme 17 Court plainly distinguished “loss” from “chose in action” (i.e., when a claim is subsequently reduced to a “sum of money due”): Under California law [i.e., Henkel], assignment of insurance benefits may violate an anti-assignment provision, even ifsuch assignment tookplace after the insuranceloss, if the claim against the policy has not been “reduced to a sum ofmoney due or to become due underthepolicy.” (In re Thorpe Insulation Co. (C.D. Cal. Sept. 21, 2010, No. CV 10-1493) 2010 U.S. Dist. LEXIS 104196, *10 [quoting Henkel; emphasis added], revd. on other grounds, Motor Vehicle Casualty Co. v. Thorpe Insulation Co. (9th Cir. Cal. 2012) 677 F.3d 869; accord Negri v. Nationwide Mutual Ins. Co. (N.D. W.Va. Oct. 24, 2011, No. 5:11cv3) 2011 U.S. Dist. LEXIS 123083, *19-20 [Henkel “found even post-loss assignmentofpolicy rights to be non-assignable”’]; Sandburg Fin. Corp v. Nat. Union Fire Ins. Co. (S.D. Tex. July 25, 2011, No. H-10-2332) 2011 U.S.Dist. LEXIS 81398, *16 [describing Henkel’sholding as: “a post-loss, pre-judgment assignment without consentis prohibited”) )" Tellingly, Hartford eventually concededthis crucial point: Thedissent put the “loss” issue front and center, as hadthe earlier decision of the Court of Appeal. The majorityadopted a different analysis. (Answer-Writ, at p. 6 [emphasis added].) The “different analysis” that the 4 (See also Stempel, Assessing the Coverage Carnage: Asbestos Liability and Insurance After Three Decades ofDispute (2006) 12 Conn.Ins. L.J. 349, 459 [“In California, it is no longer enoughfor the loss event to have taken place in order for an insurance policy to becomeassignable (even in the face of anti-assignment or consent requirement language in the policy). Instead, the loss must not only have taken place but must ‘have been reduced to a sum ofmoney due or to become due under the policy.’” (quoting Henkel, emphasis added)].) 18 Henkel majority adopted was not the one mandated by the Legislature, whichestablishesthe timethat “loss happens”asthe critical point when anti-assignment clauses become “void”as a matter of law. (See Ins. Code, § 520; cf. California Bank, supra, 159 Cal.App.2d Supp.at p. 865 [“[S]tatute law must control whether[] cases are in harmony therewith or not.”’].) Becausethe parties in Henkelfailed to cite the governing statute, this Court should reexamine the issue applying the test mandated by section 520. C. This Court Should Confirm that Anti-Assignment Clauses in Occurrence-Based Third-Party Liability Insurance Policies are Void After the Coverage-Triggering “Loss” “Happened” Whenanalyzedthrough the proper prism of section 520, the key issue raised bythis Petition is easily framed: At what point does a “loss happen”in an occurrence-basedliability policy, rendering subsequent assignments valid? The insurance industry explicitly intended the term “occurrence” to “identify the time of Joss” for the purposesofthird-party liability policies. (Elliott, The New Comprehensive GeneralLiability Policy (Schreiber ed. 1968) Practicing Law Institute, Liability Insurance Disputes, 12-5 [emphasis added].) Therefore, it is not surprising that California’s insurance jurisprudence, including this Court’s seminal decisions in Montrose and Continental,'° confirms that “loss” arises in an occurrence- 'S (Montrose Chem. Corp. ofCal. v. Admiral Ins. Co. (1995) 10 Cal.4th 645; State v. Continental Ins. Co. (2012) 55 Cal.4th 186.) 19 based liability policy when an underlying claimantsuffers “bodily injury” or “property damage.”!® In Montrose, this Court repeatedly equated “loss” with the underlying eventthat triggers coverage.'’ (See, e.g., Montrose, supra, 10 Cal.4th at pp. 654-655 [defining the relevant “losses” as the “continuous or progressively deteriorating bodily injury andproperty damagethat occurred during the successive policy periods”); id. at p. 679 [describing '® In the courts below, Hartford has attempted to escape the longline of authority and the admission ofthe insurance industry itself concerning the time when “loss” happens under a CGL policy by pointing to a provision of the Insurance Codethat delineates the “Classes of Insurance”subject to the Insurance Commissioner’s regulatory jurisdiction. (See Ins. Code, § 108 [Liability insurance includes: (a) Insuranceagainstloss resulting from liability for injury .. . .”].) However, section 108 mnerely describes the commercial instrument (insurance)that is used to protect policyholders againstthe risk that their acts will cause damageto another for which the policyholderis responsible. “Loss”is the expression ofthe claimant’s “injury”thatis shifted to a tortfeasor through “liability.” That liability attaches, and the claimant’s “injury” becomesthe policyholder’s “loss,” at the moment the insured event (“occurrence” of “bodily injury”or “property damage”) happens. '” The Court of Appeal unfairly maligns Fluorfor “flood[ing] [the Court] with criticism of the Supreme Court’s decision in Henkel” (Attachment B [Fluor Corp. v. Super. Ct., supra, 208 Cal.App.4th at p. 1512]), by relying on a series of incomplete quotations taken outof context. For example, far from referring to Henkel as a “senseless jumble,” Fluor merely pointed out that the term “Joss,” as it was long ago defined by this Court, cannot be reconciled with Hartford’s contention that “loss” in a third-party liability policy is the equivalent of Henkel’s “chose in action against the insurer.” (See Fluor’s Petition for Peremptory Writ of Mandate,at pp. 56-57 jAiscussing Montrose].) Improperly substituting “chose in action against the insurer”for “loss”-- two entirely different terms that the Henkel Court implicitly recognized happenatdifferent points -- each time thelatter appears in Montrose would muddle the Court’s discussion in that case so as to make it indecipherable. 20 the “insurer’s obligation to indemnify an insured for manifested losses” (citation omitted)].)" Moreover, the Court recently reaffirmed that settled understanding of “loss” in Continental. In ruling that “the policies at issue obligate the insurers to pay all sums for property damage . . . as long as someofthe continuous property damage occurred while each policy was ‘on the loss’” (Continental, supra, 55 Cal.4th at p. 200), the Court again equated “loss” with the underlying even: that triggers coverage. For cases of “continuous” or “long-tail loss,” the Court held: [T]he principles announced in [Montrose and Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 55-57] apply to the insurers’ indemnityobligations in this case, so long as the insurers insured the State during the property damageitself. (/d. at p. 191 [emphasis added]; see alsoid. at p. 197 [“[A]s long as the property is insured at some point during the continuing damageperiod, the insurers’ indemnity obligations persist until the loss is complete, or terminates.”]; id. at p. 192 [“The fact that all policies were covering the risk at some point during the property loss is enoughto trigger the insurers’ indemnity obligation.”]; id, at p. 201 [“{The] insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered[.]’”].) The Courts of Appeal have followed that interpretation. For example, in Westoil Terminals Co. v. Harbor Ins. Co. (1999) 73 Cal.App.4th 634, 641-642, the court was presented with a claim for '8 See also Montrose, supra, 10 Cal.4th at p. 697 (Baxter, J., concurring) (“In the third party context, the relevant risk is the insured’s act or omission, andthe resulting damage,injury, or Joss to another, which together form the basis oflegal liability against the insured.” [emphasis added]). 21 coverage arising from pollution that had happenedin the 1970’s under policies for which the benefits had been assigned in the 1980’s. The court held that the insured “loss” was the “occurrence” of contamination that caused damageto third-party property and so gaverise to the insured’s liability: In the matter before us, the loss occurred during the policies’ periods in the early 1970’s. The transfer of the policies to Westoil Partnership in 1986 was well after the loss... Inasmuch as the loss occurred in the early 1970’s, any transfer of the policies in 1986 did not in any fashion increase the risk to respondents. .. . (Westoil, supra, 73 Cal.App.4th at p. 641-42 [emphasis added].)!” Similarly, in Employers Ins. Co. of Wausau v. Travelers Indemnity Co. (2006) 141 Cal.App.4th 398, the Court explained that third-party liability insurers’ obligation vwtheir insured arose long ago: long before the Jensen-Kelly releases and the Avila and Arlich actions werefiled. (Fireman’s Fund, supra, 65 Cal.Ary,4th at p. 1304, 77 Cal.Rptr.2d 296 (“Primary coverage provides immediate coverage upon the ‘occurrence’ of a ‘loss’ or the ‘happening’ of an ‘event’ givingrise to liability”]; see generally Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at p. 645, 42 Cal.Rptr.2d 324, 913 P.2d 878 [analyzing “trigger of coverage” question in context of continuous or progressive injury from environmental contamination].) At the time ofloss, each insurer had a potential obligation to defend and indemnify Whitman against claims that might arisefrom a toxic discharge. (Id. at p. 405 [emphasis edded].) The Henkel majority opinion itself approvingly cited Westoil, albeit for a different purpose. (Henkel, supra, 29 Cal.4th at p. 944.) 22 These decisions recognize that, in the context of third-party liability policies, the events within the policyholder’s control that must occur to giverise to coverage havealltaken placeat the timethat fortuitous event happens.”” Itis at the point whenthat “‘fortuity (i.e., the ‘occurrence’ or ‘accident’) has happenedandthe third party has been injured by the insured’s conduct, [that] liability coverage becomes implicated.” (Chu v. Canadian Indemnity Co.(1990) 224 Cal.App.3d 86, 95.) Indeed,it is the presence ofrisk that makestherelationship between underwriter and policyholder one of insurance. When that risk subsequently disappears. upon the happening ofan “occurrence,”there is no longer an “insured risk,” but a “loss.” At that moment, the insurance contract has lost its aleatory character, and section 520 allows the policyholderto freely assign its rights. Given this received understandingof the term “loss” by insurers and courts alike, the Henkel majority opinion did not dispute Justice Moreno’s interpretation of “loss” in the third-party liability insurance context. As is now apparent, however, section 520 makes“loss”the test, and reflects the same rule that Justice Moreno argued flows from the © Under “occurrence”-based policies, the happening ofan “occurrence”is referred to as the “trigger” of coverage. As the Supreme Court explained in Montrose: In the third party liability insurance context, “trigger of coverage” has been used by insureds and insurers alike to denote the circumstances that activate the insurer’s defense and indemnity obligations under the policy. (Montrose, supra, 10 Cal.4th at p. 655 [emphasis added].) Although the insurer’s obligation to perform -- to defend and/or indemnify -- may not be immediately due, it has been “activated”by the “occurrence.” This triggering event is the “loss” addressed by section 520. 23 commonlaw: Anti-assignment clauses are unenforceable if they restrict the assignmentofrights after the “occurrence” happens, regardless of whether that loss has been further “reduced to a sum of money due or to become due under the policy”at the.time of the assignment. (Henkel, supra, 29 Cal.4th at p. 944.) D. Significant Harms Flow from Failing to Enforce Section 520 Buyersandsellers of businesses should be able to conduct efficient transactions and realize the benefits of insurance written to cover their liabilities -- benefits they are being denied underthe rule of Henkel. Because section 520 is now beingcited to legitimately question Henkel, litigants will continue to petition the courts urging them to apply the governingstatute. However, as this case demonstrates, lower courts will understandably hesitate to enforce section 520 in the face of this Court’s pronouncementofthe commonlaw: [HARTFORD COUNSEL]: ... This Court, of course, is bound to apply Supreme Court precedent. ... This Court is not free to disregard Henkel, evenif it thinks that the Supreme Court gotit wrong in Henkel, whichit didn’t really get wrong. THE COURT:You know,you’ve told methat[,] that’s not an issue. They can be dead wrong, but they are still the Supreme Court. (App. Ex. 36, at pp. 10911-10912.) JUSTICE R¥LAARSDAM: Well, do we have even the authority to say, “Well, the Supreme Court did wrong so we’ll go the other way?” Maybe we’ [FLUOR COUNSEL]: I think the answerto that question, Justice Rylaarsdam,is yes. 24 JUSTICE RYLAARSDAM: Well, I think the answerto that question is no. [FLUOR COUNSEL]: Well, under California law, statutory law controls, regardless of whetherthe Supreme Court may declare the common law to be something different. Andin this case, the Henkel court did not consider the governing statute or the overriding principle that supports -- JUSTICE RYLAARSDAM:Well, it seems to me whenyoufile your petition for re-hearing, that argument will undoubtedly be considered. I mean, yourpetition for hearing in the supremecourt. [FLUOR COUNSEL]: I think that’s right. And that’s precisely the issue that was teed up in Fluor’s petition forrelief. JUSTICE RYLAARSDAM:That’s wherethis case is going in any event; right? [FLUOR COUNSEL]: I think that’s probably right, Your Honor. I think that ultimately the supremecourt is going to be the arbiter of whatit did or didn’t do in the Henkeldecision. (RIN, Ex. 1 at pp. 6:21-7:21; accord Attachment B [Fluor Corp. v. Super. Ct., supra, 208 Cal.App.4th-at p. 1508 (“We cannot reevaluate [Henkel’ s] wisdom or merits.”)].) V. CONCLUSION This Petition presents a question of great importanceto insurers, insureds andtort claimants. The Legislature has provided a rule which fosters the orderly, predictable conduct of corporate transactions and assignmentofliability insurance rights. Rather than addressing the merits of Fluor’s Petition, the Court of Appeal’s decision simply sows more confusion by holding that Insurance Codeprovisions adopted from the original Civil Code, such as section 520, do not govern liability policies. This flawed conclusion not only underminestheplain language, history and 25 purpose of section 520, but contradicts decades of settled case law where similar provisions, such as section 533, have been consistently applied to liability policies. For the foregoing reasons, Fluor respectfully requests that review be granted. DATED: October9, 2012 LATHAM & WATKINS LLP Brook B. Roberts John M. Wilson , By: Aa) John MY Wilson Attorneys for Petitioner Fluor Corporation 26 CERTIFICATION OF COMPLIANCE WITH RULES OF COURT Petitioner’s counselcertifies that this brief meets the requirements of the California Rules of Court. It has been prepared in 13-point Times New Romantypeface and consistsofa total of 7,232 words, as counted by the word-processing program (Microsoft Word) used to generate this Petition, exclusive of the Tables and Certification. DATED: October 9, 2012 LATHAM & WATKINS LLP Brook B. Roberts John M. Wilson oy. 4cNL John MNWilson Attorneys for Petitioner Fluor Corporation 27 Court of Appeal, Fourth Appellate District, Division Three - No. G045579 S196592 IN THE SUPREME COURT OF CALIFORNIA En Banc FLUOR CORPORATION,Petitioner, Vv. SUPERIOR COURT OF ORANGE COUNTY,Respondent; HARTFORD ACCIDENT & INDEMNITY COMPANY,Real Party in Interest. The petition for review is granted. The matter is transferred to the Court of Appeal, Fourth Appellate District, Third Division, with directions to vacate its order denying mandate andto issue an order directing the superior court to show cause whytherelief soughtin the petition should not be granted. Cantil-Sakauye_ ChiefJustice Kennard Associate Justice SUPREME COURT Baxter f{Z fe Ry Associate Justice NOV 16 201 Werdegar Associate Justice Frederick <. Ohirich Clerk Chin Associate Justice Deputy Corrigan Associate Justice LIU Associate Justice LexisNexis” ® Analysis Asof: Oct 09, 2012 Page 1 FLUOR CORPORATION,Petitioner, v. THE SUPERIOR COURT OF ORANGE COUNTY,Respondent; HARTFORD ACCIDENT & INDEMNITY COMPANY, Real Party in Interest. G045579 COURT OF APPEAL OF CALIFORNIA, FOURTH APPELLATEDISTRICT, DIVISION THREE 208 Cal. App. 4th 1506; 2012 Cal. App. LEXIS 937 August 30, 2012, Opinion Filed PRIOR HISTORY:[**1] Petition for a writ of mandate to challenge an order of the Superior Court of Orange County, No. 06CC00016, Ronald L. Bauer, Judge. Fluor Corporation v. S.C. (Hartford Accident & Indem- nity Company), 2011 Cal. LEXIS 12107 (Cal., Nov. 16, 2011) DISPOSITION: Petition denied. CASE SUMMARY: PROCEDURAL POSTURE:In a case involving two corporate entities with the same name,petitioner corpo- ration #2 filed a petition for writ of mandate to direct respondent, the Orange County Superior Court, Califor- nia, to grant its motion for summary adjudication. OVERVIEW:Theissue in this case was whether cor- poration #1 could assign its rights under severalliability insurance policies to corporation #2 as a result of a "re- verse spinoff." The court concluded that /ns. Code, § 520, which wasenacted in 1872, had no bearing as a "clear"or "controlling" legislative expression on the assignability of liability insurance becauseliability insurance did not exist in 1872. At the time the statute was enacted, insurance provided protection against first party marine, fire, and property damage losses. The decision in Henkel Corp.v. Hartford Accident & Indemnity Co. directly applied to the policies at issue. The court saw nothing in § 520 or in Henkel to support corporation #2's assumption that the Supreme Court would have reached a different result had the parties in that appeal briefed or argued the statute's applicability. In addition, there remained a fact intensive inquiry as to whether corporation #2 legally retained an interest in the policies as a mere continuation of corpora- tion #1. These mixed questions of law and fact demon- strated why issuance of a peremptory writ was premature at this stage of the ongoinglitigation. OUTCOME:Thepetition for writ of mandate was de- nied. LexisNexis(R) Headnotes Insurance Law > Bad Faith & Extracontractual Liabil- ity > AssignmentofClaims [HN1] See /ns. Code, § 520. Governments > Legislation > Interpretation {HN2}]It is a fundamental doctrine of statutory interpre- tation that statutes are to be construed in the context in which they were written. Statutes are documents having practical effects. It is therefore improper to construe them Page 2 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** in the abstract, without taking into consideration the his- torical framework in which they exist. Insurance Law > Bad Faith & Extracontractual Liabil- ity > Assignment of Claims Insurance Law > Property Insurance > Obligations > Losses {HN3] The concept of “loss” is easily identifiable for first-party property damage coverage. Before a "loss" such as a ship sinking or a burned building takes place, insurers have a vested interest in their personal relation- ships with the named insureds, and a legally-recognized need to prevent nonconsensual assignments to less re- sponsible insureds. The insurer has a right to know, and an interest in knowing, for whom it stands as insurer. The insurer may be willing to insure one person and unwilling to insure another, while the ownerof a particular parcel of property. The insurer may have confidence in the honesty and prudence of the one in protecting the property and thereby lessening the risk, and may have no confidencein the other. After a first party loss, however, the insurer's need to consentdissipates, because any assignmentis only of money already due under the contract. That is why a covenant or agreement in an insurance policy against an assignment following such a first-party loss is grossly oppressive. Governments > Legislation > Interpretation Insurance Law > General Overview [HN4] See Ins. Code, § 2. Insurance Law > General Liability Insurance > General Overview Insurance Law > Property Insurance > Coverage > Property Damage [HN5] See Ins. Code, § 108. Insurance Law > Bad Faith & Extracontractual Liabil- ity > Assignment of Claims Insurance Law > General Liability Insurance > Oc- currences [HN6] In Henkel Corp.v. Hartford Accident & Indemnity Co., the California Supreme Court rejected the view that under an occurrence-basedliability policy, policy benefits can be assigned without consent once the event givingrise to tort liability against the insured has occurred. Governments > Courts > Authority to Adjudicate Governments > Legislation > Interpretation Governments > State & Territorial Governments > Legislatures [HN7] A court cannot, in the exercise of its power to interpret, rewrite the statute. That is a legislative and not a judicial function. SUMMARY: CALIFORNIA OFFICIAL REPORTS SUMMARY In a case involving two corporate entities with the same name, corporation # 2 filed a petition for writ of mandate to direct the superior court to grant its motion for summary adjudication. The issue in this case was whether corporation # 1 could assign its rights under several lia- bility insurance policies to corporation # 2 as a result of a "reverse spinoff." (Superior Court of Orange County, No. 06CC00016, Ronald L. Bauer, Judge.) The Court of Appeal denied the petition for writ of mandate, The court concluded that /ns. Code, § 520, which was enacted in 1872, had no bearing as a “clear" or “controlling” legislative expression on the assignability of liability insurance becauseliability insurance did not exist in 1872. At the time the statute was enacted, insurance provided protection against first party marine, fire, and property damagelosses. The decision in Henkel Corp. v. HartfordAccident & Indemnity Co. directly applied to the policies at issue. The court saw nothing in § 520 or in Henkel to support corporation # 2's assumption that the Supreme Court would have reached a different result had the parties in that appeal briefed or argued the statute's applicability. In addition, there remained a fact intensive inquiry as to whether corporation # 2 legally retained an interest in the policies as a mere continuation of corpora- tion # 1. These mixed questions of law and fact demon- strated why issuance of a peremptory writ was premature at this stage of the ongoing litigation. (Opinion by Ikola, J., with O'Leary, P. J., and Rylaarsdam, J., concurring.) HEADNOTES CALIFORNIA OFFICIAL REPORTS HEADNOTES (1) Insurance Contracts and Coverage § 77--Liability Insurance--Assignability--Reverse Spinoff.--In a case in which the issue was whethera corporation could assign its rights under several liability insurance policies to an- other corporation as a result of a "reverse spinoff," /ns. Code, § 520, which was enacted in 1872, had no bearing as a "clear" or "controlling" legislative expression on the assignability of liability insurance because liability in- surance did not exist in 1872. [Cal. Insurance Law & Practice (2012) ch. 47, § 47.07.] Page 3 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** (2) Statutes § 19--Construction--Context.--It is a fun- damental doctrine of statutory interpretation that statutes are to be construed in the context in which they were written. Statutes are documents having practicaleffects.It is therefore improper to construe them in the abstract, without taking into consideration the historical framework in which they exist. (3) Insurance Contracts and Coverage § 64--Property Damage--Assignment--Loss,--The concept of "loss" is easily identifiable for first party property damage cover- age. Before a "loss" such as a ship sinking or a burned building takes place, insurers have a vested interest in their personal relationships with the named insureds, and a legally recognized need to prevent nonconsensual as- signments to less responsible insureds. The insurer has a right to know, and an interest in knowing, for whom it stands as insurer, The insurer maybe willing to insure one person and unwilling to insure another, while the owner of a particular parcel of property. The insurer may have confidence in the honesty and prudence of the one in protecting the property and thereby lessening the risk, and may have no confidence in the other. After a first party loss, however, the insurer's need to consent dissipates, because any assignment is only of money already due underthe contract. That is why a covenant or agreementin an insurance policy against an assignmentfollowing such a first party loss is grossly oppressive. (4) Insurance Contracts and Coverage § 77--Liability Insurance--Assignment--Without Consent.--In Henkel Corp. v. Hartford Accident & Indemnity Co., the Supreme Court rejected the view that under an occurrence-based liability policy, policy benefits can be assigned without consent once the event givingrise to tort liability against the insured has occurred. (5) Statutes § 20--Construction--Judicial Func- tion--Rewriting of Statute.--A court cannot, in the ex- ercise of its power to interpret, rewrite the statute. That is a legislative and nota judicial function. COUNSEL: [*1508] Latham & Watkins, Brook B. Roberts and John M. Wilson forPetitioner. No appearance for Respondent. Gaims, Weil, West & Epstein, Alan Jay Weil; Shipman & Goodwin, James P. Ruggeri and Joshua D. Weinberg for Real Party in Interest. JUDGES; Opinion by Ikola, J., with O'Leary, P. J., and Rylaarsdam,J., concurring. OPINIONBY:Ikola 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, [**2] a companythat 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 claim- ants had not been reduced to a sum of money due or to become due underthe policy, the Supreme Court enforced the policy's consent-to-assignmentclause. Henkel was heavily litigated and closely watched. Wecannotreevaluate 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 curiae briefs on both sides, the decision is described as having been "announced in ig- norance" as a result of a "remarkable failure of the ad- versary system." Even the "integrity ofthat proceeding”is called into question. Why are we urged to ignore this controlling deci- sional law? According to petitioner, we must do so be- cause the Legislature has adopted a contrary rule--a "statutory directive" which "conclusively drawstheline... Ww [*1509] Petitioner has unearthed this legislative pronouncement in a statute originally enacted in 1872, which provides: "An agreement not [**3] to transfer the claim of the insured against the insurer after a loss has happened,is void if made before the loss ... ." (/ns. 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 oneraised 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 addressit. Page 4 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** (1) There is a logical reason for this obscurity. The 1872 statute can have no bearing as a "clear" or "control- ling"legislative expression on the assignability ofliability insurance for the simple reason thatliability 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 comeinto being. I FACTUAL AND PROCEDURAL BACKGROUND Petitioner Fluor Corporation (here called Fluor-2) is the second of two corporations named "Fluor Corpora- tion." 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 [**4] Fluor-1) was created in 1924! 1 We follow the lead of the California Supreme Court in Henkel, supra, 29 Cal.4th at page 938, footnote I, in using the monikers "Fluor-1" and “Fluor-2" to distinguish between the two corpora- tions, At varying times, the parties have used the terms "Old Fluor" and "New Fluor" to make the same distinction. We prefer the Supreme. Court's formulation to avoid giving the misimpression that "Old Fluor" no longeris a viable corporate entity. But, as respondent court noted in the June 27, 2011 minute orderthat is the subject of the instant writ proceeding: "Using those names obviously decides nothing about the merits of these mo- tions." In the reverse spinoff, Fluor-1 transferred its engi- neering, procurement, construction and project manage- ment services to Fluor-2 as part of a "new strategic direc- tion" to realign Fluor “as a single, highly focused com- pany." Fluor-1 retained various coal mining and energy operations and renamed itself as "Massey Energy Com- pany." 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 Hart- ford Accident & Indemnity Company (Hartford) [**5] provided comprehensive liability insurance [*1510] coverage to Fluor-1 through 11 different policies. These policies were invoked when various Fluorentities were sued for injuries arising out of asbestos-containing mate- rials 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 de- fense of both Fluor-1 and Fluor-2. In 2006, Fluor-2 initiated the underlying coverage action against Hartford to resolve various coverage dis- putes, including the designation of the applicable policies, the interpretation of the "completed operations" clause, and Hartford's calculation of Fluor's retrospective pre- mium 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 [**6] 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 insur- ance 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, andit 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 sum- mary adjudication to the first and second causesofaction of the cross-complaint, based on theasserted invalidity of the consent-to-assignment clauses, Attempting what re- spondent court called a "preemptive strike," Fluor-2 contended that the consent-to-assignment clauses were void under an 1872 statute, since recodified as /nsurance Code section 520, which permitted assignments, with or withoutinsurer 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 [**7] pronouncementthat once the fortuitous event trig- gering coverage (the property damage under typical first-party coverage, the ‘occurrence’ under typical third-party liability policies) has happened, the benefi- ciary of an insurance contract should stand on the same footing as any other [contracting] party entitled to its promisor's performance,and thushavetheability to freely assign such rights." {*1511] Hartford opposed the motion by relying upon the California Supreme Court decision in Henkel, supra, 29 Cal.4th 934, holding that such con- sent-to-assignment clauses were valid and enforceable until the loss matured into a liquidated sum. "[T]hese facts sort offit like a hand in the glove with the Henkel case." Page 5 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** 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 ex- plained that it opposed Hartford's motion becauseit "re- quired a 'fact-intensive inquiry’ as to a numberofissues, 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 [**8] 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 Henke/ based on the 1872 statute. "[The Su- preme Court] can be dead wrong, but they arestill 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 andto 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 pro- ceedings in the underlying action pending resolution of this writ petition. In April 2012, Fluor-2 filed a request for judicial no- tice of various documents, including the code commis- sioners' 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 [**9] request for judicial notice. I THIS COURT IS DUTYBOUND TO FOLLOW HENKEL, WHICH DOES NOT CONTRADICT ANY EXPRESS LEGISLATIVE POLICY Aninfluential law review article used citation analy- sis to determine whether and whythe California Supreme Court is the most followed state [*1512] 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. Ac- cording to Fluor-2, "[w]Jhere the common law--even as announced by our Supreme Court--conflicts with a con- trolling statute, the trial court, and this Court must apply the statute to resolve cases governed by it." "The neces- sary relief can, and should, be granted without offense to stare decisis." The Supreme Court's issuance of a grantand transfer signifies the high court's determination that the matter is appropriate for appeilate review, but it does not constitute a direction for us to ignore, limit, or reexamine Henkel. Nor does it restrict our review of [**10] respondent court's order denying summary adjudication to a specific legal issue. "The Supreme Court's transfer order does not mean petitioners are correct on the merits or that a writ should issue, but rather we should reconsider the matter and file an opinion. We may reach the sameresult as we did upon ourfirst consideration of the case ... ." (Desert Outdoor Advertising v. Superior Court (2011) 196 Cal.App.4th 866, 872 [127 Cal. Rptr. 3d 158].) Weproceed to examine the Supreme Court's decision in Henkel, and whether, as Fluor-2 contends, /msurance Code section 520 trumpsit. A. The Supreme Court's Decision in Henkel Is on Point and Cannot Be Distinguished Fluor-2 floods us with criticism of the Supreme Court's decision in Henkel, supra, 29 Cal.4th 934 as a "controversial decision,” a "senseless jumble," an "im- pediment to corporate transactions," and “an ill-advised forfeiture of insurance rights." Hartford is equally stalwart in its defense of Henkel, arguing "Henkel has far more than the weight of stare decisis on its side." "Hartford's coverage obligations remain with its insured [(Fluor-1)]; for the reasons the Supreme Court noted in Henkel, Hartford should not be forced to undertake the burden of extending [**11] coverage to [Fluor-2], an entity Hart- ford never agreed to cover." [*1513] Henkel is not the “outlier" that Fluor-2 characterizes. Nationally, the reaction of the few other jurisdictions to have considered Henkel is mixed. (Most states have not addressed theissueat all. 2 In Travelers Casualty & Surety Co. v. United States Filter Corp. (Ind. 2008) 895 N.E.2d 1172, /179, the Supreme Court of Indiana followed Henkel's reasoning, distinguishing between first party claims, involving "instantly incurred loss, such asthat resulting from windstorm orfire,” and third party claims, which involve injuries, which may be unreported or even unrealized "for years." "The California Supreme Court's logic in Henkel Page 6 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** seems about right. At a minimum,for an insured loss to generate an assignable coverage benefit, the loss must be identifiable with someprecision. It must be fixed, not speculative. [Citation.] We doubt that much, if any, authority exists for the proposition that an ‘unliquidated inchoate poten- tial for coverage’ can be freely transferred without the insurer's consent." (/d. at p. 1180.) The Supreme Court of Ohio rejected Henkel as to the duty to indemnify, but was unable to provide a definitive [**12] answeras to the duty to defend. (Pilkington North America, Inc. vy. Travelers Casualty & Surety Co. (2006) 112 Ohio St.3d 482 [2006 Ohio 6551, 861 N.E.2d 121],) All of this is beside the point. Despite its rhetoric, Fluor-2 says it does not ask us to revisit or limit Henkel, "But Fluor did not, and does not here, ask for an order overtuling Henkel or second-guessing the wisdom ofthat Court's analysis of the common law." Weagree. We have neither the powernorthe incli- nation to reverse Henkel. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455 [20 Cal. Rptr. 32], 369 P.2d 937]; Gwartz v. Superior Court (1999) 7] Cal.App.4th 480, 481 [83 Cal. Rptr. 2d 865] ["'Stare de- cisis and all that stuff."].) Wealso agree with respondent court that Henkeldi- rectly applies to the Hartford policies. Indeed, the lan- guage of the consent-to-assignment clause is identi- cal--not a surprising coincidence since Hartford also was the insurer in Henkel. The Hartford consent-to-assignment clause provides: “Assignment of interest under this policy shall not bind the Companyuntil its consent is endorsed hereon." (See Henkel, supra, 29 Cal. 4th at p. 943.) In Henkel, the insured spunoffone ofits two distinct productlines (involving metalworking chemicals) into a separate, [**13] newly created corporation, with the second corporation assuming by contract the assets and the liabilities of the first corporation insofar as they re- lated to metalworking activities. Although the insurers provided liability coverage to the prespinoff corporation during the time that various workers were exposed to metallic chemicals and sustained bodily injuries, they relied on the consent-to-assignmentclauses in their poli- cies to deny coverage to the second corporation. Like Fluor-2, the plaintiff in Henkel argued it was entitled to coverage becausethe liability insurancepoli- cies were written on an "occurrence" basis, [*1514] thereby fixing the insurer's coverage obligations when the tort claimants were injured as a result of their exposure. (Henkel, supra, 29 Cal.4th at p. 944.) “According to Henkel, in this case there is no additional risk because the injury occurred before the assignmentandthe assignment does not affect either liability or policy limits.” (/d. at p. 945.) Our Supreme Court disagreed. After surveying over a century of California decisional law as well as treatises and other commentaries, the court concluded that con- sent-to-assignmentclauses are generally valid and [**14] enforceable until the time that claims had been "reduced to a sum of money due or to become due underthe poli- cy." (Henkel, supra, 29 Cal.4th at p. 944.) Because the predecessorcorporationstill existed, the court recognized the ubiquitous potential for disputes over the existence and scope of the assignment. "If both assignor and as- signee wereto claim the right to defense, the insurer might effectively be forced to undertake the burdenofdefending both parties. In view of the potential for such increased burdens,it is reasonable to uphold the insurer's contrac- tual right to accept or reject an assignment." (/d. at p. 945.) Asin Henkel, the merefact that the events giving rise to liability--exposure to asbestos--took place before the reverse spinoff does not automatically expand the uni- verse of insureds with whom Hartford owesa relationship to include both Fluor-1 and Fluor-2. B. The 1872 Statute Does Not Constitute an Express Legislative Pronouncement Regarding the Assignability of Liability Insurance Policies That Undercuts This Court's Duty to Follow Henkel Rather than asking us to reconsider Henkel, Fluor-2 wants us to disregard Henkel because of the Supreme Court's failure [**15] to “apply the written law ofthis State as enacted by the Legislature, which the Supreme Court was not made aware of, and did not consider." According to Fluor-2, Henkel is not precedent because it was a "case decided in ignoranceof statute ... ." Fluor-2 purports to find this express legislative pro- nouncement regarding a corporation's right to transfer liability insurance assets in Insurance Code section 520, which provides: [HN1] "An agreementnotto transfer the claim of the insured against the insurer after a loss has happened,is void if made before the loss ... ." Fluor-2 interprets /nsurance Code section 520 to in- validate consent-to-assignmentclauses in liability insur- ance policies after the insured "occurrence" has taken place. It argues, "[o]nce the insured risk is realized (has occurred or happened), the policy favoring free transfer of property rights [*1515] outweighs the insurer's interest in restricting the transfer of policy benefits prior to the happening of the insured ‘occurrence.’ This is the sound policy enacted by the Legislature in section 520, which stands in stark contrast to the majority's decision in Hen- kelf, supra,] 29 Cal.4th 934." (Italics added.) Page 7 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** According to Fluor-2, [**16] /nsurance Code sec- tion 520 is "squarely controlling" and providesthe "rule of decision in this case, and therefore the rule the Superior Court was boundto follow in ruling on Fluor's motion." Because Henkel, as an announced rule of common law decision, "conflicts" with section 520, Fluor-2 says we must follow the "expressed legislative will," not Henkel, which "necessarily committed legal error." Fluor-2 calls section 520 a “brightline rule set forth by the Legislature" that cleans up the "uncertainty and disarray” "unneces- sarily" created by Henkel. Insurance Code section 520 wasfirst enacted in 1872 as Civil Code section 2599, The provision was recodified verbatim as Insurance Code section 520 when the Insur- ance Code was enacted in 1935, (Stats. 1935, ch. 145, p. 510.) Insurance Code section 520 is one of the more ob- scure provisions of the California codes. No court has everrelied onit, and it has been cited only once, in pass- ing, in Gillis v. Sun Ins. Office, Ltd (1965) 238 Cal.App.2d 408 [47 Cal. Rptr. 868], a first party property insurance case involving an assignment of coverage after portions of the insured property (a waterside restaurant) were damaged in a violent windstorm. The statute [**17] is unmentioned in either treatise or commentary. 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 curiae so much as mentioned the sup- posed 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 amicicuriae, 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 nationalvisibility." (Fn. omitted.) We have a more mundaneexplanation why Jnsurance Code section 520 has remained hidden for so long. There is less to the statute's supposed significance regarding assignability ofliability insurance than meetsthe eye. [HN2] (2) It is a fundamental doctrine ofstatutory interpretation that statutes are to be construed in the con- text [**18] in which they were written. "Statutes are [*1516] documents having practical effects. It is there- fore improper to construe them in the abstract, without taking into consideration the historical framework in which they exist." (2B Singer & Singer, Statutes and Statutory Construction (7th ed., 2008) § 49:1, p. 7; see Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387 [241 Cal. Rptr. 67, 743 P.2d 1323] [historical context as a factor in statutory interpre- tation].) For these reasons, the California Supreme Court in Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 816-819 [119 Cal. Rptr. 858, 532 P.2d 1226], declined to expansively interpret ambiguous language in another 1872 statute (Civ. Code, § 1714) to support the conclusion that the Legislature intended to "uniformly apportion damages according to fault." (Zi, at p. 8/8.) Li refused to ascribe such far-reaching intentions, given the fact that "in 1872 there was no American jurisdiction applying concepts of true comparative negligence for general purposes, and the only European jurisdictions doing so were Austria and Portugal." (/d. at p. 819, fn. omitted.) Instead, Lileft it to the courts to judicially adapt existing law "to changing circumstances and conditions." (/d. at p. 821.) Insurance Code section 520, [**19] as we have noted, was first adopted in 1872, when the industrial revolution and California statehood were in their child- hood, seven years before California adoptedits 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. (3) As such, [HN3] the concept of "loss," to which the 1872 statute referred, is easily identifiable for first party property damage coverage. Before a "loss" such as a ship sinking or a burned building takes place, insurers have a vested interest in their personal relationships with the named insureds, and a legally recognized need to prevent nonconsensual assignments to less responsible insureds, "The insurer has a right to know, and an interest in knowing, for whom he stands as insurer. He may be willing to msure one person and unwilling to insure an- other, while the owner ofa particular parcel of property. He may have confidencein the honesty and prudence of the one in protecting the property and thereby lessening the risk, and may have no confidence in the other." (Bergson v. Builders' Ins. Co. (1869) 38 Cal. 541, 545.) After a first party [**20] loss, however, the insurer's needto consentdissipates, because any assignmentis only of money already due under the contract. (See Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229 [175 P.2d 63] [house destroyedby fire before close of escrow: affirming assignmentbysellers to buyers of right to re- cover proceeds underfire insurancepolicy].) That is why, according to the code commissioners’ note to the 1872 [*1517] statute, a covenant or agreementin an insurance policy against an assignment following such a first party loss "is grossly oppressive." (Code commrs., note fol]. 2 Amn. Civ. Code, § 2599 (Ist ed., 1872, Haymond & Burch, commrs.-annotators) p. 152.) Page 8 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** Third party liability policies present more problem- atic concepts of "loss." Does liability insurance provide protection for the "loss" sustained by insureds when they are subjected to a judgment for money damages and the indemnity policy becomes “a vested claim against the insurer and can be freely assigned or sold like any other chose in action or piece of property"? (17 Williston on Contracts (4th ed. 2000) § 49:126, p. 125.) Or, as the one dissenting justice argued in Henkel, does the "loss" take place much earlier when the victim of the insured's con- duct [**21] sustains bodily injury or property damage? (Henkel, supra, 29 Cal.4th at p. 948 (dis. opn. of Moreno, J.).) Aboutthis definitional question, the 1872 Legislature cared not a whit. To the 1872 Legislature,the idea of third party liability insurance wasas alien as other yet unborn developments, like the Internet (commercialized in the 1990's), Orange County (split from Los Angeles County in 1889), and the California Court of Appeal (established by constitutional amendment in 1904). Fluor-2 concedes that liability insurance did not exist in 1872; at oral ar- gument, its counsel called liability insurance a "different animal"than first party coverage. Not until the 1880's was the first policy of liability insurance written in America, when an English company with a Massachusetts branch wrote a policy to cover bodily injuries accidentally sustained by an insured's employees. (See discussion in 2 Dunham, The Business of Insurance (1912) Liability Insurance: Historical Sketch,p. 191; see also 1 Appleman on Insurance 2d (Holmesed. 1996) § 3.3, p. 353.) The first mention of "liability in- surance" does not appear in a California judicial opinion until 1908. (Aronson v. Frankfort etc, Ins. Co. (1908) 9 Cal.App. 473 [99 P. 537] [**22} [involving indemnity to an insured arising out of an elevator accident].) Fluor-2 argues that the recodification, undertaken in 1935, of the original 1872 statute as /nsurance Code sec- tion 520 somehow transmogrified the provision into a "bright line rule" regarding /iability insurance.It states, "Although third-party liability insurance was unknownat the time of the statute's inclusion in the Civil Code of 1872, the same was not true when it was reenacted as Section 520 of the new Insurance Code in 1935 and then amended in 1947. Section 520 thus clearly applies to liability policies.” Not so. As the Legislature itself expressed, the wholesale migration of insurance-related provisions from the Civil Code to the Insurance Code was [*1518] not intended to effectuate a substantive change in the law. Thus, Insurance Code section 2 provides:[HN4] "The provisions of this code in so far as they are substantially the same as existing statutory provisions relating to the same subject matter shall be construed as restatements and continuations thereof, and not as new enactments." Evenso,liability policies began purely as indemnity contracts, focused on protecting the insureds from liabil- ity, “with no purpose [**23] more expansive than pro- tecting the insured’s assets. The insurer's duty to indem- nify was not activated until the insured actually paid a judgment." (1 Applemanon Insurance 2d, supra, § 3.3, p. 350.) "Based on this 19th and early 20th century insurance provision, the liability insurance contract was in the strictest sense an ‘indemnity’ contract. The contract in- demnified only the insured, and gave no actionable con- tract rights to a third-party claimant. So even an insured could not directly recover from the liability insurer until an actual loss occurred by the insured paying a tort or other judgment.” (/bid.) Moreover, the Insurance Codeitself defined "loss," in the context of liability insurance, as loss resulting from the insured's liability to the injured person, not the injury or harm to the underlying claimant. In this regard, Jn- surance Code section 108 provides: [HN5] "Liability insurance includes:[{] (a) Insurance againstloss resulting from /iability for injury, fatal or nonfatal, suffered by any natural person,or resulting from ... damage to property ... ." (Italics added.) In 1947, Insurance Code section 520 was further amended, but the 1947 amendmentrelated solely to life insurance. [**24] There is nothing in the 1947 amend- ment or anywhere else in section 520 that articulates legislative policy pertaining to the assignmentofliability policies or at whatstage the right to policy proceeds were freely assignable notwithstanding a con- sent-to-assignment provision in the policy. (See Stats. 1947, ch. 904 § 1, p. 2103.) It is true, as Fluor-2 notes, that certain types oflia- bility insurance have focused upon the concept of "oc- currence" as trigger points for an insurer's defense and indemnity obligations because that is the point at which the underwritten risk materializes. (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal. 4th 645, 655 [42 Cal. Rptr. 2d 324, 913 P.2d 878] (Montrose).) Thus, Fluor-2 extensively quotes from various sources within the insurance industry, including the secretary of the National Bureau of Casualty Underwriters and various superior court briefs by liability insurers in states like New Jersey, Illinois, and Oregon for the interpretation thatloss’ in an occurrence-basedliability policy happens at the time of the tort claimant's injury, which givesrise to the insured's liability (in other words, the time of the ‘occurrence')." "This triggering event is the ‘loss’ ad- dressed [**25] by {Insurance Code] section 520." [*1519] In State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186 [145 Cal. Rptr. 3d 1, 281 P.3d Page 9 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** 1000] (Continental), our Supreme Court expanded on complex questions of liability insurance coverage for long-tail claims, involving progressive damagethat takes place slowly over a longperiodoftime and over multiple consecutive policy periods. As in Montrose, the court looked to whether the insurance policies in question covered the risk when the continuing property damage "occurred," and then looked to the languageofthe policies to determine whether insurers should be held liable for losses before or after their respective policy periods, and whether those policies for a continuous long-tail loss should be "stacked." But this evolution ofliability coverage, as articulated in Montrose and Continental, came nearly a century after the 1872 legislation. Moreover, Fluor-2's so-called " ‘occurrence’ test" was rejected by the Supreme Court in Henkel, drawing Justice Moreno's lone dissent, which suggested the "date of injury" as the more appropriate measure whena lossis established. "As explained below, under the policies at issue in this case, a [**26] chosein action is established on the date of injury, which is when the loss occurs." (Henkel, supra, 29 Cal. 4th at p. 948 (dis. opn. of Moreno, J.).) Justice Moreno explicitly relied on Montrose, supra, 10 Cal.4th at page 669, to support his reasoning regarding the assignability of the liability in- surance policies at issue: It "is unclear how the majority's understanding that the policy benefits are assignable only after they are reduced to a monetary sum can be recon- ciled with Montrose." (Henkel, at p. 949 (dis. opn. of Moreno,J.).) (4) Justice Moreno's six colleagues, however, disa- greed about Montrose's relevancy to con- sent-to-assignment provisions. As we have dis- cussed,[HN6] Henkel rejected the view that “under an occurrence-basedliability policy [citation], policy bene- fits can be assigned without consentoncethe eventgiving rise to [tort] liability [against the insured] has occurred." (Henkel, supra, 29 Cal.4th at p. 944.) Henkel instead focused on when the insured has sustained a cause of action for breach of the insurance contract: "Defendants had not breached any duty to defend or indemnify [the named insured], so [the named insured] could not assign any cause of action for breach [**27] of such duty." (ibid) We cannot gainsay this determination by ourstate's highest court. Neither Montrose nor Continental changes our analysis, Hereis the nub. The 1872 Legislature drew nobright lines and made no controlling pronouncements about liability insurance, or about how "loss" in the context of such policies is to be defined. We see nothing in /nsur- ance Code section 520 or in Henkel to support Fluor-2's assumptionthat the Supreme Court would have reached a different result had the parties in that appeal [*1520] briefed or arguedthe statute's applicability. In the absence of an expresslegislative directive, stare decisis controls. (5) If Fluor-2 wants to recast the 1872 statute to ac- count for the evolution of modern liability insurance policies on an “occurrence”basis, it should direct its at- tention to the Legislature. [HN7] "A ' "court cannot,... in the exercise of its powerto interpret, rewrite the statute. ... Thatis a legislative and not a judicial function." '" (Estate ofSanders (1992) 2 Cal.App.4th 462, 476 [3 Cal. Rptr. 2d 536] [declining to interpret statute to compel DNA testing to prove paternity in probate proceedings].) "The reex- amination of the law that [appellant] urges onthe basis of [modern] [**28] advances must comefrom the Legisla- ture.” (/bid.) If the rule of law in Henkelis to be vitiated, the Legislature in the 21st century, not the Legislature in the 19th century, must do it. I! THE PARTIES HAVE NOT PROPERLY PLACED INTO ISSUE WHETHER FLUOR-1 ASSIGNED THE POLICIES TO FLUOR-2 As a separate reason for denying the petition, Hart- ford argues that Fluor-2, as the moving party for summary adjudication, failed to establish the absence ofa triable issue of material fact whether Fluor-1 assigned the Hart- ford policies to Fluor-2. Fluor-2 counters that Hartford's second amended cross-complaint never placed this matter into issue. In- stead, Hartford, under its own characterization, sought a declaration that "fo the extent that [Fluor-2] might con- tend that it was assigned rights to the policies by [Flu- or-/], such a purported assignment was invalid because neither [Fluor-1] nor [Fluor-2] ever sought or obtained Hartford's consent to assignment ofthe policies, as re- quired by the Hartford policies." (Italics added.) Hartford now calls these "hypothetical facts." This is one point on which both parties happen to agree. There remains, in Fluor-2's words, a "fact intensive inquiry" whether Fluor-2 [**29] legally retained an in- terest in the Hartford policies as a "mere continuation”of Fluor-! or otherwise. Given our holding that /nsurance Code section 520 does not abrogate the Supreme Court decision in Henkel, we see no reason to enmesh ourselves in this thicket, These mixed questions of law and fact remain with the trial court and are unaffected by our opinion in this writ proceeding. But they do demonstrate why issuance of a peremptory writ is prematureat this stage of the ongoing litigation. [* 1521] IV Page 10 208 Cal. App. 4th 1506, *; 2012 Cal. App. LEXIS 937, ** DISPOSITION proceeding is final 30 days after filing. (Cal. Rules of Thepetition for writ of mandate is denied. Hartfordis Court, rule 8.490(b).) entitled to costs in this writ proceeding. This court having O'Leary,P. J., and Rylaarsdam,J., concurred. issued an order to show cause, the decision in this writ PROOF OF SERVICE Iam employed ithe County of San Diego, State of California. I am over the age of 18 years and nota party to this action. My business address is Latham & Watkins LLP, 600 West Broadway, Suite 1800, San Diego, CA 92101-3375. On October 9, 2012, I served the following documentdescribed as: PETITION FOR REVIEW by serving a true copy of the above-described documentin the following manner: BY OVERNIGHT MAIL DELIVERY I am familiar with the office practice of Latham & Watkins LLPfor collecting and pracessing documents for overnight mail delivery by Federal Express Mailor other express service carrier. Underthat practice, documents are deposited with the Latham & Watkins LLP personnel responsible for depositing documentsin a post office, mailbox, subpostoffice, substativin, mail chute, or otherlike facility regularly maintained for receipt of overnight mail by Federal Express Mail or other express service carrier; such documentsare delivered for overnight mail delivery by Federal Express Mail or other express servicecarrier on that same day in the ordinary courseofbusiness, with delivery fees thereon fully prepaid and/or provided for. I deposited in Latham & Watkins LLP’ interoffice mail a sealed envelope or package containing the above- described document and addressed asset forth below in accordance with the office practice of Latham & Watkins LLP for collecting and processing documents for overnight mail delivery by Federal Express Mail or other express service carrier: SEE &TTACHED SERVICE LIST I declare that I am employedin the office of a memberofthe Barof, or permitted to practice before, this Court at whosedirection the service was madeand declare underpenalty of perjury underthe lawsofthe State of California that the foregoing is true andcorrect. Executed on Octvber 9, 2012, at San Diego, California. Thue Gnde Elisa Carlucci SERVICE LIST Alan Jay Weil, Esq. Jeffrey B. Ellis, Esq. Gaims, Weil, West & Epstein, LLP 1875 Century Park East, Suite 1200 Los Angeles, CA 90067-2513 Telephone: (310) 407-4500 Facsimile: (310) 277-2133 ajweil@gwwe.com jellis@gwwe.com Counsel for Hartford Accident and James P. Ruggeri, Esq. (pro hac vice) Tara Plochocki, Esq. Joshua Weinberg, Esq. Shipman & Goodwin LLP 1133 Connecticut Avenue, NW Washington, D.C. 20009 Telephone: (202) 469-7750 Facsimile: (202) 469-7751 jruggeri@goodwin.com Indemnity Company tplochocki@goodwin.com Jweinberg@goodwin.com Counsel for Hartford Accident and Indemnity Company Office of the Clerk Superior Court of California, County California Court of Appeal, Fourth Appellate District, Divisics Three 601 W. Santa AnaBlvd. Santa Ana, California 92701 of Orange, Dept. CX 103Hon. Ronald L. Bauer751 West Santa Ana Blvd.Santa Ana, CA 92701 SD\923399