I am often asked whether an Assignment of Benefits (“AOB”) is valid in [insert state here] under a property insurance policy. The purpose of this blog series will be to provide readers with an answer to the question on a state-by-state basis. As New Jersey is my home-state, it’s up first.
In a standard HO3 Policy, it states under the Conditions Clause, that: “Assignment of this policy will not be valid unless we give our consent.” (“We,” meaning the insurance company.) More often than not, where an AOB is challenged, the carrier will utilize this clause as their basis for the position that the AOB is invalid.
In New Jersey, the courts have addressed this very issue. First, the courts note that the clauses prohibiting assignment of the policy are valid and enforceable. In 1895, the Supreme Court of New Jersey held:
A policy of insurance is a contract of indemnity, personal to the party to whom it is issued, or for whose interest the insurer undertakes to be responsible in case of loss, and cannot be transferred to a third person, so as to be valid in his hands against the insurer, without the insurer’s consent.1
This, however, is not the end game for AOBs in NJ. In Flint Frozen Foods v. Firemen’s Insurance Company, the Superior Court of New Jersey held that, “once a occurs, an insured’s claim under a policy may be assigned without the insurer’s consent.”2 The Court further noted that after a covered loss occurs:
[T]he prohibition of assignments without the consent of the insurer [ceases]. Its liability [has] become fixed, and like any other chose in action [is] assignable regardless of the conditions of the policy in question. This is settled by the great weight of authority. In Wood on Fire Insurance, vol. 2, par. 361 the doctrine is stated thus: … ‘[If there has been an assignment following a loss,] the insurer becomes absolutely a debtor to the assured for the amount of the actual loss, to the extent of the sum insured, and it may be transferred or assigned like any other debt.’3
More recently, the Appellate Division of the Superior Court reviewed this issue and in addition to following the case law above, detailed the basis of why AOBs are permissible in the Garden State:
The purpose behind a no-assignment clause is to protect the insurer from having to provide coverage for a risk different from what the insurer had intended.  A no-assignment clause guards an insurer against any unforeseen exposure that may result from the unauthorized assignment of a policy before a loss. Insurers provide policies of insurance to those individuals and entities that insurers have determined are acceptable risks. If an insured assigns the policy to a third party without the insurer’s consent, the insured may cause the insurer to bear a risk the insurer never agreed to accept and never would have accepted. 
But if there has been an assignment of the right to collect or to enforce the right to proceed under a policy after a loss has occurred, the insurer’s risk is the same because the liability of the insurer becomes fixed at the time of the loss. Thereafter, the insurer’s risk is not increased merely because there has been a change in the identity of the party to whom a claim is to be paid. 
Moreover, once the insurer’s liability has become fixed due to a loss, an assignment of rights to collect under an insurance policy is not a transfer of the actual policy but a transfer of the right to a claim of money.  It is a transfer of a chose in action as opposed to a transfer of an actual policy.  The insurer becomes absolutely a debtor to the assured for the amount of the actual loss, to the extent of the sum insured, and it may be transferred or assigned like any other debt.4
As this is a series, and we will be hitting every state one-by-one, it may take some time to get to your state. If you have any specific questions on AOBs or would like to see your state come up sooner, please comment below, or send me an email at email@example.com.
As always, I’ll leave you with a (mildly) related tune, here’s New Jersey’s own Blues Traveler with their debut hit, Run-Around:
1 Kase v. Hartford Fire Ins. Co., 58 N.J.L. 34, 36 (1895).
2 Flint Frozen Foods v. Firemen’s Ins. Co., 12 N.J. Super, 396, 399-400 (Law.Div. 1951) rev’d on other grounds, 8 N.J. 606, 86 A.2d 673 (1952).
4 Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 442 N.J.Super 28, 37-38 (App.Div. 2015) (internal citations omitted).