Assignment of Benefits

With its 2008 enactment of Colorado Revised Statute § 10-3-1115 and § 10-3-1116, Colorado has created one of the country’s strongest statutory bad faith causes of action. What makes Colorado’s bad faith statute even more exceptional is that it allows a repair vendor, such as a roofer or restoration contractor, to assert a claim for unreasonable delay or denial on behalf of an insured.
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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.
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In Assignment of Unaccrued or Contingent Benefits, I discussed the distinction between assignments of Contingent Benefits and assignments of Noncontingent Benefits under a property insurance policy. For purposes of this blog, a Contingent Benefit is a benefit or payment that is either not yet fixed in amount or 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 of the applicable 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 regarding 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, the underlying repairs are completed.
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It is widely accepted that insurance policies are generally not assignable by the policyholder unless the insurance company consents to the assignment. In most states, it is also well-established that after a covered loss has occurred, the policyholder ordinarily may assign the claim to another person or entity, even if the policy contains a clause that prohibits assignments. But what does that mean, exactly? Specifically, what rights and benefits can a policyholder assign to a third party after a covered loss has occurred?
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Assignment of Benefits (“AOBs”) has been an issue in the property insurance realm for several years. In fact, the Florida Legislature made a hard push to address the issue during the 2017 Session but was unable to do so. The two main AOB bills that gained traction last Session dealt with the issue in slightly different ways. SB 1218 was sponsored by Senator Gary Farmer. I have set forth the summary staff analysis below:
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