At the request from a reader, Part Three of my blog series on Assignments of Benefits (“AOBs”) will look at Pennsylvania and whether AOBs are valid and enforceable there.
“Under Pennsylvania law, an assignment is ‘a transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, chattel, or other thing.’”1 As I state in each of these posts, a Standard HO3 Policy, includes the following language under the Conditions Clause: “Assignment of this policy will not be valid unless we give our consent.” The “we” meaning the insurance carrier, and where an insurance carrier challenges AOBs, they utilize this clause as the basis for their position that the AOB is invalid.
With regard to the non-assignment clauses, courts in Pennsylvania have held them valid but note, “the Pennsylvania courts scrutinize them carefully by examining both the specific language used and the purposes for which they have been inserted.”2 Concerning AOBs:
In the context of insurance polices, anti-assignment clauses are enforceable under Pennsylvania law to invalidate any assignment of rights under a policy that predates a loss covered by the policy… A “loss” is “the occurrence of the event, which creates the liability of the insurer.3
The Pennsylvania courts have explained their reasoning as follows:
Generally, non-assignment clauses are included in insurance policies for the protection of insurers. Such clauses are designed to guarantee that an increase of the risk of loss by a change of the policy’s ownership cannot occur without the consent of the insurer. Because non-assignment clauses limit the amount of risk that the insurer may be forced to accept, courts will generally strike down an insured’s attempt to assign its policy to a new insured. Consistent with the general purposes of non-assignment clauses, however, courts are reluctant to restrict the assignment of an insured’s right to payment which has already accrued. Therefore, because an insured’s right to proceeds vests at the time of the loss giving rise to the insurer’s liability, restrictions on an insured’s right to assign its proceeds are generally rendered void.4
As we’ve seen with New Jersey and Maryland, AOBs are valid and enforceable in Pennsylvania provided they are assigned after a covered loss.
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.
As always, I’ll leave you with a (mildly) related tune, here’s Pennsylvania’s own Poison with their hit, Nothin’ But A Good Time:
1 Seneca Ins. Co., Inc. v. Lexington and Concord Search and Abstract, LLC, 484 F.Supp.2d 374, 377 (E.D.Pa. 2007) citing Fran & John’s Doylestown Auto Center, Inc. v. Allstate Ins. Co., 432 Pa.Super. 449 (1994).
3 Id. at 377-78. (Internal citations omitted.) (Emphasis added.)
4 Id. at 378.