Thursday, August 20, 2015

Fluor Corp. v. Superior Court (Cal. Supreme Ct. - Aug. 20, 2015)

What a great opinion.  Arising out of something you very, very rarely see.

The case is about the assignment of insurance coverage after corporate mergers or spinoffs.  It's complicated and, unless you're in this field, you don't really need to know the holding.  (Though it certainly wouldn't hurt.)  For our purposes, it's sufficient to say that, in 2003, the California Supreme Court held that the rule was X; here, that an insurer could validly prohibit insureds from assigning their rights after a loss has occurred.

But -- and here's the unusual part -- notwithstanding the incredible attention to and briefing in cases in the California Supreme Court, no one noticed or mentioned that there's actually a statute that already governs this issue; in particular, Section 520 of the California Insurance Code.  A statute that's been on the books since 1872 (and that was recodified 1935).  And -- and here's the incredible part -- that statute says that insurers cannot do what the California Supreme Court said in 2003 they could.

No one saw the thing.  No one mentioned it.  It didn't get cited.  It didn't get argued.  It was simply overlooked.

But after the California Supreme Court's decision, someone stumbled across the thing.  Which led to people starting to argue.  Arguments which eventually led to lawsuits.  Lawsuits which eventually culminated in today's California Supreme Court opinion.

What do you do when you clearly held X but a statute says the actual rule should be Y?

Today the California Supreme Court answers that question.  Its holding:  You overrule the prior case and make the law Y.

Now, I'm not entirely sure that'd be the answer if the world (and justices) loved rule X.  Or if there were definite, settled, investment-backed expectations based upon that principle.  But that's not the case here:  the insurance companies didn't materially rely on rule X (since the losses had already transpired), and my sense is that the current justices on the California Supreme Court -- like many commentators -- aren't thrilled with rule X either.  So that makes it a lot easier to overrule that principle based upon an overlooked statute rather than simply affirming rule X on stare decisis grounds.

Which would be doctrinally tough anyway.  Since a common law rule really shouldn't prevail over a statutory enactment.  Overlooked or not.

So, here, you've essentially got a unanimous California Supreme Court that says, n the words of Gilda Radner:  "Never mind."

(Or, as the California Supreme Court more artfully -- and legally -- puts it:  "[T]his 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 post, part IV, 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. (Cf. Smith v. Anderson (1967) 67 Cal.2d 635, 646 (conc. opn. of Mosk, J.) [“'Wisdom too often never comes, and so one ought not to reject it merely because it comes late.'”], quoting from Wolf v. Colorado (1949) 338 U.S. 25, 47 (dis. opn. of Rutledge, J.).)"

Love it.  Great opinion.

One more thing.  I also learned something new.  Maybe you will too.  Guess when third-party liability insurance started in the United States?  The Court tells us in footnote 19:  "Liability insurance was first issued in the United States in 1886. (2 Dunham, The Business of Insurance (1912) pt. IV, Liability Insurance, ch. 43, Historical Sketch, p. 191.) It did not exist prior to then because, until the United States Supreme Court allowed such insurance in Phoenix Ins. Co. v. Erie Transportation Co. (1886) 117 U.S. 312, it was considered to be against public policy, and illegal, to insure against one‟s own negligence in tort."

Didn't know that.  Now I do.