In Assignment of Unaccrued or Contingent Benefits, I discussed the distinction between assignments of Contingent Benefits and assignments of Noncontingent Benefits under a property insurance policy. For purposes of this blog, a Contingent Benefit is a benefit or payment that is either not yet fixed in amount or the carrier is not yet obligated to provide because additional, specific conditions of the policy have not yet been fulfilled or excused. Noncontingent Benefits are those for which all of the applicable conditions have been fulfilled or excused and the carrier’s obligation to provide the benefits (such as a payment) has accrued. An example of a Noncontingent Benefit is a policyholder’s right to receive payment of the Actual Cash Value (ACV) of a claim after the insurance company has been notified of the loss and the policyholder has cooperated with the carrier’s evaluation of the loss. An example of a Contingent Benefit regarding a replacement cost property insurance policy is the right to receive the depreciation holdback (sometimes called the replacement cost holdback) prior to completion of the underlying repairs. In other words, the carrier’s obligation to pay the depreciation holdback is contingent upon, and does not arise unless and until, the underlying repairs are completed.
I noted in my previous blog that in 2015, the Supreme Court of California pointed out that insurance companies had only recently begun to challenge the validity of assignments of Contingent Benefits. In this blog, I will discuss how the Supreme Court of California handled that question—that is, the validity of assignments of Contingent Benefits—in Fluor Corporation v. Superior Court, 61 Cal.4th 1175, 354 P.3d 302 (2015).
The specific question presented to the California Supreme Court in Fluor was whether a statute that has been on the books in California since 1872 had any effect on the court’s prior ruling regarding the validity of assignments of Contingent Benefits under common law principles. In its 2003 decision in Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal.4th 934, 62 P.3d 69 (2003), the court ruled that, based on common law principles, the policyholder under a liability policy that contained a provision prohibiting assignments could not assign the right to invoke coverage under the policy, even after a loss, until the loss had “been reduced to a sum of money due or to become due.” In other words, in Henkel, the court ruled that, under common law principles, the policyholder’s assignment of a Contingent Benefit under a liability policy was not valid or enforceable, despite the fact that the respective loss had already occurred.
Henkel remained the law in California with respect to post-loss assignments of Contingent Benefits until the court was asked to review the same question in Fluor—except in Fluor, the court was asked to consider that question in light of section 520 of California’s Insurance Code. That section states: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.” Although section 520 was in effect at the time the court decided Henkel, neither party addressed section 520 and the court did not consider that statute when it reached its decision based on common law principles.
In a lengthy opinion in which it analyzed the history of California’s insurance code and the treatment of assignments of insurance benefits, specifically regarding liability policies, the California Supreme Court ruled in Fluor that section 520 prohibits carriers from refusing to honor post-loss assignments of Contingent Benefits, as well as Noncontingent Benefits. The court further held that section 520 supersedes common law principles applicable to assignments, including the principles it relied on when it decided Henkel twelve years before.
The court noted that the principle reflected in the decisions of other courts that have upheld the validity of post-loss assignments of Contingent Benefits have been “described as a venerable one, born of experience and practice, facilitating the productive transformation of corporate entities, and thereby fostering economic activity.” Interestingly, the court surmised that although section 520 of California’s Insurance Code has been in effect for over 145 years, it had not previously been asked to address its application to assignments of Contingent Benefits apparently because insurers had only “recently beg[u]n to disallow and contest such assignments [and therefore,] . . . there was little cause for insureds to think about, much less rely on, section 520.”
Although the decision in Fluor concerned a post-loss assignment of benefits under a liability policy, the court at least suggested that section 520 applies to first party, as well as third party, policies. Therefore, policyholders under property insurance policies should be able to rely on section 520. The California Supreme Court decision in Fluor suggests that post-loss assignments of Contingent Benefits under property insurance policies are valid in California, as in the other states I mentioned in my prior blog.
In an upcoming blog, I’ll discuss how we addressed the issue of post-loss assignments of Contingent Benefits in the Arizona cases we are handling, and how the courts in Arizona have ruled on that question.
Sometimes courts express general principles that go beyond the specific case they are deciding and which are worth noting in other contexts, even on a personal level. In that regard, the California Supreme Court stated the following in its last footnote in Fluor, in which it addressed the fact that neither party in Henkel had raised section 520 in their briefs, although that statute clearly applied to the dispute and would have changed the outcome of it:
Of course, this still does not explain why section 520 was not discussed by the parties — especially the plaintiff or its amicus curiae — in Henkel itself. And yet as observed . . . such omissions occasionally happen. This reminds us that even with access to computer research technology, any human enterprise cannot be perfect; and that it is better that wisdom, or at least controlling authority, come to our attention late, rather than not at all.