SACRAMENTO, Calif. — A recent unanimous California State Supreme Court ruling ensures the state’s policyholders are protected from insurers refusing to cover third-party liability claims when the insured transfers the insurance benefits after the events triggering coverage have occurred but before claims are fully resolved.
In its decision regarding Fluor vs. Superior Court (Hartford), the Court relied heavily on the amicus brief filed by Insurance Commissioner Dave Jones, which argued that once an insurer accepts premium for a risk and the covered events occur during the policy period, the insurer’s obligation is fixed and it must defend the insured against subsequent third-party claims even if the insurance benefits are transferred to another entity before claims are fully resolved.
A California Department of Insurance press release used a dry cleaner as an example of the transfer of insurance coverage benefit: “A dry cleaner small-business owner owns the building in which the drycleaning business is located. He wants to move to a bigger building and sell his existing building to afford the move. The buyer is willing to buy the building, but only if the owner transfers the insurance policy providing pollution liability coverage for any events occurring during the policy period expiring prior to the date of sale. This ruling allows the dry cleaner to transfer the pollution liability coverage provided by the policy along with the building.”
“The court made the right decision in finding that once an insurer accepts premium to cover certain risks, and those risks actually occur, the insurer’s obligations are fixed regardless of any subsequent transfer of the insurance benefits,” says Jones. “The statute is clear. Insurers should not be able to avoid their obligations.”
In the Fluor vs. Superior Court (Hartford) case, the issue was whether an insurer can walk away from coverage obligations when the insured transfers the insurance benefit to another entity after the events triggering the insurance coverage have already occurred. Here, Fluor transferred its coverage to another company after the events causing potential liability had occurred but before claims were filed. The lower court upheld the existing consumer protections in the state’s insurance code and required the insurer to meet its coverage obligations regardless of the transfer.
You can read the entire court decision HERE.
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