Many policyholders forget that their insurance policy is a contract and is subject, with exceptions, to the usual laws of contract. An issue that frequently arises is whether the named insured is able to assign insurance proceeds under the policy to another. The answer to that question is dependent on the type of coverage sought.
Most insurance policies have a “consent to assignment clause” that typically provides: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.”1 This clause is designed to protect the insurer from having to extend coverage to an entity it never agreed to cover. In California, the enforceability of the clause depends on both the timing of the assignment and whether the claim is a first party loss – where the insured is seeking benefits for a sunk ship or a burned building, or a third party claim, which protects insured in certain instances when the insured might be liable to another.
With respect to first party claims, insurers have a vested interest in their personal relationships with the named insureds, and before a loss, a legally recognized need to prevent non-consensual assignments to less responsible insureds.2 After a first party loss, however, the insurer’s need to consent dissipates, because any assignment is only of money already due under the contract and any right of the insured as a result of the loss may be assigned with or without the consent of the insurer; thus the consent to assignment clause is deemed unenforceable.3 With respect to third party claims, the California Supreme Court held in Henkel that the consent to assignment clause is enforceable and, as a result, a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s liability coverage in the absence of an insurer-approved assignment regardless of when the assignment took place.4
The enforceability of “consent-to-assignment” clauses is dependent on the law of each particular state. Always check with an attorney before making an assignment of policy benefits to another, regardless of the situation.
1 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, 943.
2 Bergson v. Builders Ins. Co. (1869) 38 Cal. 541, 545.
3 Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229, 232 [house destroyed by fire before close of escrow; affirming assignment by sellers to buyers of right to recover proceeds under fire insurance policy].
4 Henkel, supra, 29 Cal.4th at p. 944.