In prior blog posts on assignment of contingent benefits, I discussed the distinction between assignments of contingent benefits and assignments of noncontingent benefits under a property insurance policy. For the purpose of this post, a contingent benefit is a benefit or payment that is either not yet fixed in amount or regarding which the carrier is not yet obligated to provide because additional, specific conditions of the policy have not yet been fulfilled or excused. Noncontingent benefits are those for which all conditions have been fulfilled or excused and the carrier’s obligation to provide the benefits (such as a payment) has accrued.
An example of a noncontingent benefit is a policyholder’s right to receive payment of the Actual Cash Value (ACV) of a claim after the insurance company has been notified of the loss and the policyholder has cooperated with the carrier’s evaluation of the loss. An example of a contingent benefit in a replacement cost property insurance policy is the right to receive the depreciation holdback (sometimes called the replacement cost holdback) prior to completion of the underlying repairs. In other words, the carrier’s obligation to pay the depreciation holdback is contingent upon, and does not arise unless and until, completion of the underlying repairs.
In the earlier posts I discussed how it is well-established in most states that post-loss assignments of noncontingent benefits are valid and enforceable, but the validity of assignments of contingent benefits has only been addressed specifically in a handful of states. I discussed how the Supreme Court of California addressed that question in Fluor Corporation v. Superior Court.1 In brief, the California Supreme Court ruled that, under section 520 of California’s Insurance Code, assignments of contingent and noncontingent benefits are valid and enforceable. The court noted in Fluor, that insurers had only “recently beg[u]n to disallow and contest such assignments [of contingent benefits].”
In this blog, I will discuss the law regarding enforcement of assignments of contingent benefits in Arizona. As in the vast majority of other states, there are no appellate court decisions in Arizona that specifically address the validity of assignments of contingent benefits under insurance policies. Appellate decisions regarding the validity of post-loss assignments of noncontingent benefits at least suggest that assignments of contingent benefits would be upheld in Arizona. For instance, in St. Paul Fire & Marine Insurance Company v. Allstate Insurance Company.2 the Arizona Court of Appeals held that “[a]fter a loss has occurred and the rights under the policy have accrued, an assignment may be made without the consent of the insurer. The assignment is not regarded as a transfer of the policy itself, but rather as a chose in action.”
In addition, Arizona—similar to California and some other states—has a statute that specifically prohibits property insurance companies from engaging in any practice that “restricts” an insured’s “assignment of a loss or claim after a loss has occurred.” That statute, A.R.S. § 20-461(A)(7), states in relevant part:
A. A person shall not commit or perform with such frequency to indicate as a general business practice any of the following:
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7. As a property or casualty insurer, failing to recognize a valid assignment of a claim. The property or casualty insurer shall have the rights consistent with the provisions of its insurance policy to receive notice of loss or claim and to all defenses it may have to the loss or claim, but not otherwise to restrict an assignment of a loss or claim after a loss has occurred.
In other words, in Arizona, when a claim is assigned after a loss has occurred, the insurer may assert against the assignee any defenses the insurer has with respect to the loss or claim, including defenses based on the insurer’s notice (such as inadequate notice) of the respective loss and any other conditions under the policy, but it may not otherwise restrict or refuse to honor a post-loss assignment of benefits.
Asserting these and other arguments, we have successfully defended (i.e., defeated) at the trial court level, a national insurance company’s attempts to dismiss claims based on assignments of contingent benefits in two separate cases in Arizona. We are now investigating the extent of the carrier’s refusal to honor such assignments of contingent benefits. I’ll write about any significant developments in this area in subsequent blogs.
1 Fluor Corporation v. Superior Court, 61 Cal.4th 1175, 354 P.3d 302 (2015).
2 St. Paul Fire & Marine Ins. Co. v. Allstate Ins. Co., 25 Ariz. App. 309, 543 P.2d 147 (App. 1976).