Insurance policies commonly include language specifically forbidding an insured from assigning their rights and interests under the policy without the consent of the insurance company.
These anti-assignment clauses typically include some form of language tracking the clause below:
Assignment of Claim
Assignment to another party of any of your rights or duties under this policy regarding any claim, or any part of any claim, will be void and we will not recognize any such assignment unless we give our written consent. However, once you have complied with all policy provisions, you may assign to another party, in writing, payment of claim proceeds otherwise payable to you.
In Colorado, a distinction is made between an assignment of an insurance policy before a loss has occurred and the assignment of the benefits due to an insured after a loss. Because it involves a transfer of a contractual relationship which could impact the risk to an insurer, non-assignment clauses of pre-loss transfers are enforceable.1 This reasoning is intended to protect an insurance company against an increased risk resulting from the assignment to an unknown third party.
By contrast, an assignment after a loss does not constitute an assignment of the personal contract represented by the policy, but only of a claim or right of action on the policy. Under this reasoning, Colorado generally finds post-loss assignments to be valid regardless of any non-assignment clause contained with in the insurance policy as the assignment of a post-loss claim does not impact the risk of an insurance company as liability is already established by the loss.2 More specifically, the recognized reason for the prohibition of pre-loss assignments without consent of the insurance company – increased risk – is no longer applicable following a loss.
While Colorado does allow the post-loss assignment of a claim regardless of anti-assignment language contained within an insurance policy, the enforceability of these 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 Parrish Chiropractic Ctrs., P.C. v. Progressive Cas. Ins. Co., 874 P.2d 1049, 1053 (Colo.1994) (noting that non-assignment clauses in insurance policies are strictly enforced against attempted pre-loss transfers because such assignments materially increase insurers’ risk or obligation).
2 Parrish Chiropractic, at 1053; Rooftop Restoration, Inc. v. Ohio Sec. Ins. Co., 2015 WL 9185679, at *3 (D. Colo. Dec. 17, 2015).