SAN FRANCISCO It seems quixotic. Two Latham & Watkins attorneys argue that the California Supreme Court made a big mistake just nine years ago when it issued Henkel v. Hartford Accident & Indemnity, on the transfer of insurance policy assets when businesses are sold. The lawyers argue that the high court overlooked an obscure 140-year-old statute that controls the question.
Last summer the Fourth District Court of Appeal ridiculed the notion. "If the rule of law in Henkel is to be vitiated, the Legislature in the 21st century, not the Legislature in the 19th century, must do it," Justice Raymond Ikola wrote for a unanimous panel.
But now it appears the Supreme Court is indeed having second thoughts about Henkel. On Wednesday, all seven justices agreed to review the Latham lawyers' case, Fluor v. Hartford Accident & Indemnity.
"You would think it would be unusual of them to re-examine a case that quickly," said insurance policyholder attorney David Goodwin, a Covington & Burling partner who's not involved in the case. But, Goodwin said, "in contrast to other California Supreme Court opinions, Henkel hasn't been followed much by other states." And after a period during the late 1990s and early 2000s when the court issued a series of big rulings for insurers, more recently the court has been sympathetic to the policyholder point of view, he said.
The case stems from the 2000 reverse spinoff of Fluor into Massey Energy and a new Fluor Corp. entity. In 2006 the new Fluor entity brought coverage actions against its long-time insurer, Hartford, over decades-old asbestos claims. Hartford argued that its policies prohibited the assignment of policy rights to a new company without Hartford's consent. The insurer pointed to Henkel, which held such "consent-to-assignment" clauses valid and enforceable.
According to the Fourth District, Fluor argued that Henkel is "a senseless jumble" and runs contrary to Insurance Code §520, which holds such clauses void. Ikola was skeptical, to say the least.
"Despite Henkel's notoriety, and the national attention it drew, no litigant or amici curiae so much as mentioned the supposed centrality of §520, either before or after the decision's issuance," he wrote.
There's good reason for that, he added. Section 520 was adopted in 1872, before liability insurance as it's known today existed. "We will not ascribe to the dead hand of the 1872 Legislature controlling power over a medium that had yet to come into being," Ikola wrote.
But Fluor and Latham pushed ahead to the Supreme Court, apparently without amicus support. Henkel, Latham partner John Wilson wrote in his petition for review, "represents a rare lapse of the adversary system, in which the litigants failed to call the courts' attention to a controlling statute."
Wilson did not respond to a message left with his office Thursday morning.
Although Henkel was decided by a 6-1 vote, only Justices Joyce Kennard, Marvin Baxter and Kathryn Mickle Werdegar remain from its majority.