Not so fast Mr. Adjuster, my assignment of claim is valid even if the insurance policy says its not.
Time and time again, contractors and purchasers of property impacted by a loss have come to me complaining that insurance carriers won’t honor an assignment of an insurance claim. Generally, the reason given by the insurance carrier is language in the policy known as the anti-transfer clause, which usually reads something like this: “Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.” Other policies are even clearer and state, “Assignment of this policy will not be valid unless we give our written consent.”
According to several Tennessee court decisions, there is a difference between pre-loss assignments (which are typically not allowed) and post-loss assignments (which are allowed). The reason for this is quite easy to understand, and perhaps best demonstrated by an example. Consider an insurance company that insures a house for $250,000 to a couple with perfect credit, no loss history, no criminal background, 2 angel kids, and a well behaved dog that’s never bitten anyone. The insurance company feels good about its risk-reward analysis in underwriting the property. Now consider that same scenario, but add the fact that the young couple in living in Pleasantville assigned its insurance policy to a convicted felon who has a history of insurance fraud, arson, drug use and sales, and managing dog-fighting competitions. Then, after the assignment, the perfect house burns under suspicious circumstances and the assignee (the felon) makes a claim. Under those facts, the insurance company would justifiably want to contest coverage for this person they knew nothing about prior to the loss. Under those facts, the pre-loss assignment would not be valid and the law would not help you.
In contrast, if that same young couple living in Pleasantville assigned their claim to the same ne’er-do-well after the fire loss, then the assignment would be valid and enforceable. Why the difference? Quite simply, the assignment of the policy benefits of a claim after a loss occurs results in no increased risk to the insurance company. The loss has already occurred, and an insured has a right to assign the claim if he or she so chooses.
The real distinction is that the law allows the assignment of policy proceeds, as opposed to the insurance policy itself. Here’s a quote from one Tennessee case on the topic:
We believe it is fairly well-settled that in Tennessee, an insured may assign an insurance policy after a loss has occurred, despite an anti-assignment clause purportedly prohibiting assignments without the consent of the insurer. Zaharias v. Vassis, 789 S.W.2d 906, 910 (Tenn. Ct. App. 1989); Ford v. Robertson, 739 S.W.2d 3, 5 (Tenn. Ct. App. 1987); Metro. Life Ins. Co. v. Brown, 25 Tenn. App. 514, 160 S.W.2d 434, 437-38 (Tenn. Ct. App. 1941). However, the assignee of the policy “stands in the shoes” of the assignor and receives nothing more than what the assignor held. See Zaharias, 789 S.W.2d at 910-11.
Manley v. Auto Ins. Co., 169 S.W.3d 207, 214 (Tenn. Ct. App. 2005). So the next time an insurance adjuster tells you your post-loss assignment of claim isn’t valid, send them a copy of this blog post and see if that helps. The law is well-settled and isn’t really even open to much debate as this is the majority rule around the country.