The California Supreme Court's ruling that transferring insurance coverage in a corporate merger or acquisition does not require the insurer's consent looks to make the state more attractive to businesses.

The state high court's ruling in Fluor Corp. v. Superior Court of Orange County (Hartford Accident & Indemnity Co.) overturned its own 2003 decision in Henkel Corp. v. Hartford Accident & Indemnity Co., in which it came to the opposite conclusion.

The Aug. 20 ruling brings the Golden State in line with most of the rest of the nation in regard to that coverage question, some observers say.

The case involved a dispute arising from a 2000 corporate restructuring in which Fluor split itself into two companies.

Hartford wrote general liability coverage for the original Fluor. When the new Fluor sued in Orange County, California, Superior Court seeking coverage, Hartford argued that “the original corporation had failed to comply with the consent-to-assignment provision found in each policy,” according to the unanimous Supreme Court decision.

Fluor argued that Hartford's assertions failed as a matter of law because California Insurance Code Section 520 bars enforcement of the policies' consent-to assignment clauses “after a loss has happened,” that the asbestos exposure-related losses occurred before the restructuring and that the claims were assigned to the new Fluor along with the original company's other assets.

The trial court disagreed with Fluor, holding that the Supreme Court had addressed the issue in Henkel.

But the state Supreme Court ruled that Section 520 of the state Insurance Code applies to third-party liability insurance and said that section was not considered in Henkel.

“Under that provision, after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured's assignment of the right to invoke defense or indemnification coverage regarding that loss,” Chief Justice Tani Cantil-Sakauye wrote for the court.

“This result obtains even without consent by the insurer — and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement. Our contrary conclusion announced in Henkel ... is overruled to the extent it conflicts with this controlling statute and this opinion's analysis,” the court ruled in returning the case to the appellate level for reconsideration.

Policyholder attorneys hailed the decision.

“It's really important, because Henkel is such an outlier,” said Traci Rea, a partner in the Pittsburgh office of Reed Smith L.L.P. “The vast majority of courts went the other way.”

Fluor brings California “in line with what is the prevailing view on this issue,” she said.

“It's not really only confined to California, because it relates to interpretation of California law,” Ms. Rae said. “Even though California was an outlier, it was still unattractive for businesses wanting to do transactions with California entities.”

“California was absolutely an outlier,” said Stephen Raptis, a partner in the Washington office of Manatt, Phelps & Phillips L.L.P. who represents policyholders. “What this decision did was it gave the court an opportunity to revisit a decision that they thought they'd got wrong.”

“California policyholders really had their hands tied” before Fluor overturned Henkel, which he said hurt companies' ability to undertake routine restructuring.

“I thought it was noteworthy that the court didn't just say we're changing the opinion because someone brought Section 520 to our attention. They went a step farther and said California is out of step with everybody else,” he said.

“The case itself offered a superb analysis, and it will have sweeping ramifications for corporations involved in restructuring, acquisitions, asset transfers and other routine corporate sales,” said John Wilson, a partner in the San Diego office of Latham & Watkins L.L.P., which represented Fluor.

An attorney who represents insurers agreed the ruling is a major one.

“I think it's a very big deal,” said Julia Molander, a member in the San Francisco office of Cozen O'Connor.

“The Henkel decision I believe was not so much of an outlier,” she said. “The Fluor decision is broadly written. I think it will have an enormous impact on the insurance industry not only in terms of who they will insure, because that often will not be the party they originally underwrote as the party they insured, but will also have an impact on allocation among insurers.”

Attorneys for Hartford referred questions to the insurer, which said in a statement that “we are disappointed by the ruling, but many issues remain to be decided as the case returns to the trial court.”