Claim assignments post loss are generally valid despite policy language preventing the same. This is true even if the amount of the claim owed is disputed.1

In a very recent opinion, the facts indicated that the insureds signed a “Work Order Agreement to Perform Emergency Services, Direct Pay Authorization & Assignment of Benefits” agreement with an emergency water removal company. The insurer argued the assignment was not valid, but the Arizona appellate court found that:

[T]he general rule is that an indemnity insurance policy ‘cannot be assigned, especially where an assignment is expressly prohibited by the terms of the policy, unless the insurer consents.’…This principle ‘is based upon the right of the insurer to choose its insured so as to know its risks.’ …An assignment made after a loss occurs, however, ‘is not of the policy itself, but of a claim under, or a right of action on, the policy.’…Thus, ‘[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,’ St. Paul Fire & Marine Ins. Co. v. Allstate Ins. Co., 25 Ariz. App. 309, 311, 543 P.2d 147 (1975), and the rule enforcing anti-assignment provisions is not applicable.

The insurer then argued that the amount was disputed and the assignment was not valid. The appellate court again disagreed, stating:

We disagree that Aetna and St. Paul Fire apply only when the amount of damages the insurance company owes to the insured is not in dispute, or that, in exercising its rights as the insureds’ assignee, EcoDry is only entitled to receive whatever sum Farmers determines is due and may not challenge Farmers’ determination in court.

….the insureds executed the assignments after water damaged their homes, giving rise to their claims under the policies. The insureds did not assign their insurance policies to EcoDry, but rather they each assigned a claim under and a right of action on the policy. …Accordingly, we hold the assignments were valid post-lossassignments of benefits under the insurance policies. As the recipient of a post-loss assignment of benefits, EcoDry stands in the shoes of the insureds…and has standing to enforce the policy against Farmers.

We are unpersuaded by Farmers’ contentions that the assignments increase the insurer’s risk or alter the duties and obligations under the insurance policies, and agree with courts in other states that permit assignment of post-loss benefits due under insurance policies. In Millard Gutter Co. v. Farm Bureau Prop. & Cas. Ins. Co., the Nebraska Supreme Court upheld a judgment against an insurance company in favor of a contractor that sued as an assignee of claims under a homeowner’s insurance policy. 295 Neb. 419, 889 N.W.2d 596, 598 (2016). The insurance company paid the contractor less than half the amount the contractor billed for a roof repair, and the contractor sued the insurance company for the difference. Id. The court held the assignment was a post-loss assignment of a claim under an insurance policy and the contractor had standing to bring a breach of contract claim, despite an anti-assignment provision in the insurance policy…The court found that while there are sound public policy reasons for enforcing anti-assignment provisions before a loss occurs…those justifications are not implicated after the loss.

The insurance industry is in a full-blown fight against restoration contractors across the nation. There are many of these lawsuits throughout the country and cries of insurers claiming these assignments are a “crisis.” Insurers do not want contractors to have legal recourse when those insurers underpay claims. From the insurer’s viewpoint, it is a lot more profitable to not pay what is owed and prevent others from disputing those amounts in court.

Thought For The Day

People feel like the system is riggedagainst them, and here is the painful part, they’re right. The system is rigged.
—Elizabeth Warren
1 Farmers Insurance Exchange v. Udall, No. 1 CA-SA 18-0081, 2018 WL 2931906 (Ariz. App. Div. 1, June 12, 2018).

  • shirley heflin

    Dear Chip:

    Elizabeth Warren couldn’t have said it better: The system is rigged and what rigs it the most is money.

    The insurance company is a BILLION dollar industry and they have the wherewithal to fight, delay, stonewall, engage in litigation, etc., and – in the meantime – they’re still making money with in-coming premiums on new policies & existing policies (despite not honoring the terms of existing policies).

    It is obvious that there is a “full blown fight against restoration contractors against the nation.” I’m seeing it everywhere on social media, news media, literature, etc. What bothers me is that while these “fights” are occurring, the poor insured is sitting in the background awaiting other benefits due them other than having their roof repaired, property restored, etc. It’s just a total nightmare for the Insured – as usual.

    Tampa, FL

  • Grant Smith

    I find it interesting that insurers fight so hard against post loss assignments even when it’s considered an unfair claim settlement practice under Arizona’s Unfair Claim Settlement Practices Act (Ars 20-461).

    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.

    As a glass shop owner I take an assignment of benefits as a form of payment, yet get road blocked at every corner by the carrier or their claims administrator. I am surely not treated as though I’m in their insured’s shoes.