Liability Insurance Rights Can Follow the Liability
William G. Passannante, Cort T. Malone and Bruce Strong of Anderson Kill write: The 2003 decision in 'Henkel Corp.' severely impeded companies involved in corporate acquisitions and divestitures by enforcing consent-to-assign clauses even though policy periods had expired and the right to insurance already had accrued. In 2015, California reversed course in 'Fluor' and restored the ability of corporations to freely assign the rights available under insurance policies after a loss.
December 11, 2015 at 12:52 PM
11 minute read
The original version of this story was published on New York Law Journal
Corporate deal lawyers had for many decades designed corporate acquisitions and divestitures on the long-held foundation that historical rights to insurance proceeds were freely assignable, and that the rights to the proceeds of liability insurance could freely follow the liabilities. The design of those deals was called into question in 2003 in Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934 (Cal. 2003), which severely impeded companies involved in such transactions by enforcing consent-to-assign clauses even though policy periods had expired and the right to insurance already had accrued. In 2015, California reversed course and restored the ability of corporations to freely assign the rights available under insurance policies after a loss. Fluor Corp. v. Superior Court, 61 Cal. 4th 1175 (Cal. 2015).
Mitigation of Risk and Transfer of Insurance Rights in a Corporate Restructuring. The reversal to return to the majority rule in California will have a pro-business impact, given the current pace of mergers and acquisitions. Such activity, essential to the efficient functioning of a modern economy, depends on the ability to assign insurance assets, or the ability to assign the inchoate “chose in action” (the as-yet undeveloped potential claim) under a liability insurance policy.
An assignment of insurance rights may be particularly vital with respect to liability policies that provide coverage for long-tail claims—typically referred to as “occurrence-based” policies. While “claims-made” policies generally are triggered only when an “occurrence” and reporting of the occurrence take place during the policy period, occurrence-based policies provide coverage for an occurrence that happens during a given policy period regardless of when it is reported.
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