Sometimes policyholders will assign the right to payment under an insurance policy (i.e., assign policy benefits) to a third party (e.g., a mitigation company or contractor, in the property insurance context) following a loss. During one seminar I attended at last week’s Windstorm Conference in Orlando, we discussed whether an assignee and an assignor (i.e., the policyholder) are obliged to comply with post-loss / pre-suit policy conditions after an assignment of benefits. I thought it worthwhile to make that discussion part of this blog series. So, here we go…
The law is as follows:
Under Florida law, the assignment of a contract right does not entail the transfer of any duty to the assignee, unless the assignee assents to assume the duty. Assignment of a right to payment under a contract does not eliminate the duty of compliance with contract conditions, but a third-party assignee is not liable for performance of any duty under a contract, unless he was a party to the agreement or has become a party by subsequent agreement. Absent such an event, which is in the nature of a novation, the duty of performance of the conditions to the right of payment remains with the assignor. In other words, the assignee of a contract right owes no duty of performance to the obligor [i.e., the insurer].1
This holding was made notwithstanding policy language that attempted to subject the assignee to the assignor policyholder’s post-loss / pre-suit obligations (e.g., EUOs, POLs, document requests, et cetera). There is a bit more from the Shaw Court that you might find interesting and useful:
Another important principle of the law of assignments is that: As a general rule, the assignee of a non-negotiable instrument takes it with all the rights of the assignor, and subject to all the equities and defenses of the debtor connected with or growing out of the obligation that the obligor had against the assignor at the time of the assignment. However, the notion that, because an assignee steps into the shoes of the assignor and takes the assignment subject to all defenses of the obligor, the assignee assumes the obligations of the assignor, simply misapplies the rule. The rule means that the right of the assignee under the contract is no better than its assignor's rights. If the assignor is entitled to be paid, the assignee is entitled to be paid, but if the assignor is not entitled to be paid because of some failure of performance on the part of the assignor, then the assignee is not entitled to be paid either. By accepting an assignment of a right to be paid, the assignee does not obligate itself to perform any covenant under the contract. Moreover, as the rule quoted above plainly says, the defenses available to the obligor are fixed as of the time of the assignment, no subsequent duty on the part of the assignee arises because of the assignment.2
To read previous posts in my series on insurance policy conditions, click here.
1 Shaw v. State Farm Fire & Cas. Co., 37 So. 3d 329, 332 (Fla. 5th DCA 2010) (internal citations omitted).
2 Id. at 333 (internal citations and quotations omitted).