Opinion ID: 2828947
Heading Depth: 1
Heading Rank: 2

Heading: The decision in Henkel, and

Text: the Court of Appeal‟s decision below
In 1979 an insured entity, Amchem — which had both a metalworking chemical business and an agricultural chemical business — spun off its metalworking line into a separate, newly created corporation, which we called Amchem No. 2. That subsequent corporation assumed both the assets and the liabilities of the original Amchem insofar as they related to metalworking activities. A year later, Amchem No. 2 was acquired by and merged into Henkel Corporation. Subsequently, the original Amchem, which continued its agricultural chemical business, was acquired by another entity, which in turn was later acquired by, and merged into, yet another corporation. (Henkel, supra, 29 Cal.4th at pp. 938-939.) 10 In 1989 various workers sued Henkel Corporation and “Amchem” (without distinguishing between the two versions of that corporation), alleging personal injuries arising from exposure to metallic chemicals between 1959 and 1976. Henkel tendered its defense to the insurers of the original Amchem, including Hartford, which refused coverage, relying on the consent-to-assignment clauses in each policy and noting that no insurer had consented to covering Henkel. After settling with the injured workers, Henkel Corporation sued the insurers of the original Amchem, again including Hartford, asserting that it had acquired a right to coverage under those policies. Because the contract of sale did not expressly purport to assign the right to invoke coverage under the liability policies, Henkel argued first and primarily that such insurance coverage had transferred to it automatically by operation of law. For that proposition, Henkel Corporation relied on a federal decision, Northern Ins. Co. of New York v. Allied Mut. Ins. (9th Cir. 1992) 955 F.2d 1353 (Northern Insurance).7 7 In Northern Insurance, a corporation, Brown-Forman, purchased the assets of another corporation, California Cooler. A family filed a products liability suit against Brown-Forman for presale conduct, alleging prenatal injuries from ingestion of California Cooler‟s products. Brown-Forman sought defense from California Cooler‟s two insurers — Allied, which had covered California Cooler during most of the claimants‟ pregnancy, and Northern, which had provided liability insurance for only the last two weeks of the pregnancy. Both agreed to defend, and the claimants eventually dismissed the suit. Northern then sought contribution from Allied for its defense costs. (Northern Insurance, supra, 955 F.2d at pp. 1356-1357.) The federal appellate court in Northern Insurance rendered two main holdings: First, it reasoned that under a theory of “product-line successor liability” — and regardless of whether the parties had by contract assigned the right to invoke coverage under the policy — the successor corporation Brown-Forman could claim California Cooler‟s policy benefits because, the court determined, the rights to indemnity and to a defense “followed the liability . . . by operation of law.” (Northern Insurance, supra, 955 F.2d at p. 1357.) Second, the court held that the consent-to-assignment clause in the policy could not be enforced by the insurer because the underlying injuries had occurred prior to BrownForman‟s purchase of California Cooler‟s corporate assets and the resulting automatic (by operation of law) assignment of claims for coverage under the policy. The court reasoned that the rationale for enforcing a consent-to-assignment provision “vanishes when liability arises from presale activity” because “regardless of any transfer the insurer still covers only (footnote continued on next page) 11 The trial court ruled against Henkel Corporation, but the appellate court reversed. Finding Northern Insurance persuasive, it held that whether or not the parties had by contract assigned the rights to invoke coverage under the liability policies along with the liabilities, Henkel Corporation, as the successor entity, had acquired by operation of law both the liabilities of the predecessor and the predecessor‟s right to invoke coverage related to those liabilities. The court also held that the consent-to-assignment clause in the policies could not be enforced because the underlying injuries had occurred prior to the automatic transfer of insurance benefits. We reversed. (Henkel, supra, 29 Cal.4th at pp. 943-945.) Addressing the first issue — whether, in the context of a contract that transferred liabilities and assets, but did not specify that rights to assert insurance claims concerning those liabilities were among the assigned assets, rights to invoke that insurance coverage were nevertheless transferred by operation of law — we noted that two decisions of California Courts of Appeal disagreed with Northern Insurance on that point.8 We found it unnecessary to resolve that conflict because we determined that Henkel Corporation‟s liability had in fact been assumed by contract, and not imposed by operation of law.9 Moreover, we held, “when liability is (footnote continued from previous page) the risk it evaluated when it wrote the policy,” and, moreover, the “cooperation clause of the policy” protected the insurer should the assignee “prove a reluctant partner in the defense.” (Id., at p. 1358.) 8 See Quemetco Inc. v. Pacific Automobile Ins. Co. (1994) 24 Cal.App.4th 494, and General Accident Ins. Co. v. Superior Court (1997) 55 Cal.App.4th 1444 (General Accident). 9 We surveyed “three situations in which a buyer of corporate assets may be liable [by operation of law] for the torts of its predecessor, notwithstanding the purchaser‟s failure to assume liability by contract” (Henkel, supra, 29 Cal.4th at p. 941, italics omitted), and found none applicable on the facts. (Id., at p. 942.) 12 assumed by contract, the successor‟s rights are defined and limited by that contract.” (Henkel, at p. 943, italics added.) We next addressed Henkel Corporation‟s alternative argument that the contract had assigned the right to invoke coverage for losses that had already occurred — and that the consent-to-assignment clause in the policies was unenforceable. We rejected the argument, concluding that whether or not the parties had effectuated such a contractual transfer, “any such assignment would be invalid because it lacked the insurer‟s consent.” (Henkel, supra, 29 Cal.4th at p. 943, italics added.) As noted earlier, the clause in Henkel was identical to that in this case, barring “ „[a]ssignment of interest under this policy‟ ” absent the insurer‟s consent. Alluding to decisions enforcing similar “consent-to-assignment” clauses in a different context — purported substitution of one insured for another before a loss had occurred — we observed in Henkel that “[s]uch clauses are generally valid and enforceable.” (Henkel, supra, 29 Cal.4th at p. 943, citing Bergson v. Builders‟ Ins. Co. (1869) 38 Cal. 541, 545 (Bergson) [holding such a clause enforceable against assignment of an insurance policy itself, but expressing doubt that such a clause could be enforced regarding assignment, after a loss had occurred, of rights to invoke coverage] and Greco v. Oregon Mut. Fire Ins. Co. (1961) 191 Cal.App.2d 674, 682 (Greco) [holding such a clause enforceable regarding an attempt to substitute one insured for another, by assignment of a policy before a loss has occurred — but noting that it was “settled” that such a clause cannot be enforced to bar assignment, after a loss had occurred, of rights to invoke coverage].)10 10 In Greco, the appellate court observed: “The policy by its own terms, insofar as it involved the substitution of one insured for another, was not assignable without the consent of the insurer. Any purported assignment of such a policy without consent is ineffective. [Citations.] On the other hand, it is settled that the right to recover thereon after loss has occurred is assignable without company consent. [Citations.] The former situation involves the obligation of the insurance company to indemnify a particular person against loss; the selection of its indemnitee properly is a matter of its own choice. The latter situation involves only the payment of a claim founded upon a loss against which the policy (footnote continued on next page) 13 Consistent with these just-cited cases, Henkel Corporation argued that the right to invoke coverage “under an occurrence-based liability policy . . . can be assigned without consent once the event giving rise to liability has occurred.” (Henkel, supra, 29 Cal.4th at p. 944, italics added.) It contended that under the circumstances presented, there had in fact been an actual, and effective, postloss assignment of the right to invoke coverage. We rejected that view, concluding that any purported contractual assignment had been ineffective because the matter had not matured into a “chose in action.” (Ibid.) We began our analysis by citing cases upholding assignment of a chose in action, and we highlighted a statement in one of those cases: “ „[A] provision in a contract . . . against assignment does not preclude the assignment of money due or to become due under the contract . . . .‟ ” (Henkel, supra, 29 Cal.4th at p. 944, quoting Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335, 339-340, italics added.) From this observation about a circumstance in which a consent-to-assignment clause would not preclude assignment, we extrapolated a firm rule about what is required before a claim for insurance coverage may be assigned notwithstanding a consent-to-assignment clause: We held that there must first exist a fixed sum of money due or to become due. And yet, we observed, the “claims” at issue in the case before us “had not been reduced to a sum of money due or to become due under the policy.” (Henkel, supra, at p. 944.)11 It followed, we found, that “[i]n 1979, when Amchem No. 2 assumed the liabilities of Amchem No. 1, the duty of defendant insurers to defend and indemnify Amchem No. 1 from the claims of the [injured workers] (footnote continued from previous page) indemnifies, and the designation of a payee of such claims properly is a matter left solely to the discretion of the indemnitee, viz., the insured.” (Greco, supra, 191 Cal.App.2d at p. 682, italics added.) 11 We subsequently characterized this same inquiry as whether, “when at the time of the assignment the benefit has been reduced to a claim for money due or to become due.” (Henkel, supra, 29 Cal.4th at p. 945.) 14 had not become an assignable chose in action.” (Ibid., italics added.) Hence, we concluded, Amchem No. 1 could not properly assign its rights to invoke coverage without the insurers‟ consent. Finally, we also rejected Henkel Corporation‟s contention that assignment should nevertheless be allowed and enforced, even though the underlying claims had not been reduced to a judgment for sum of money due, because assignment would not impose any material additional risk or burden on the insurer that it did not originally bargain to assume. (Id., at p. 945.)12