(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the part of a series she is writing on business interruption claims).
Many business owners consider “pulling the plug” after a loss. Whether emotionally based or a strict numbers decision, business owners want to know if they can sell their business and assign their business loss claim as part of the package.
As a general rule, an assignment of an insurance claim after a loss will give the assignee the right to collect insurance benefits under the insurance policy even though the assignee is not a party to the insurance contract. Couch on Insurance §35:7 (3d ed. 2009). There are, however, limits to the kinds of post-loss claims that can be assigned, particularly when they involve business interruption coverage.
Bronx Entertainment, LLC v. St. Paul’s Mercury’s Ins. Co., 265 F.Supp.2d 359 (S.D.N.Y. 2003), is illustrative of the type of analysis that courts will engage in when determining the recoverability of assigned claims. In Bronx Entertainment, an insured suffered windstorm losses at its golf driving range facility. The insured made an insurance claim for the property damage and business losses and then sold the business to Bronx Entertainment. As part of the business transaction, the insured also assigned the policy to the buyer. Bronx Entertainment subsequently presented a business interruption claim for its own business losses; the carrier denied the claim and Bronx Entertainment filed a lawsuit.
In Bronx Entertainment, the Court essentially held that the claimant could no longer show actual losses sustained as required under the business interruption provision because the sale reduced the amount of continuing business losses to zero. The Court explained, however, that it may be possible to maintain an action for the losses accrued by the original insured [the assignor] at the time of the assignment.
[i]n the instant case, plaintiff is seeking to collect business interruption damages arising out of a business which did not come into existence until 17 days after the wind damage, and after Family Golf [original insured], the named insured, to whom defendant had issued its policy had ceased to operate the business covered and had transferred the title, ownership and control of the premises to plaintiff. Therefore, plaintiff cannot assert a claim for losses it suffered. Of course plaintiff may maintain an action for Family Golf’s losses that accrued as of the date of the assignment. However, plaintiff is proceeding on the theory that it is also entitled to those business losses which had yet to occur at the time of the assignment. This plaintiff cannot do because it would, in effect amount to an assignment of the entire policy to which defendant did not consent.
In other words, a business owner may assign the rights and benefits of an insurance claim to a potential buyer as part of the deal. The buyer, as assignee of the insurance claim, cannot pursue a claim in his or her own right, but rather make a derivative claim as if standing in the shoes of the original insured. It is also important to note that, as a matter of assignment law, the buyer [or assignee of the claim] will also be subject to any defenses that the carrier had or could have had against the original insured [assignee], i.e., normal policy exceptions and exclusions.