Assignment of the Policy: Is the Insurer’s Prior Written Consent Always Required for the Claim to be Accepted?

In California, regarding a transfer of an interest in a fire policy, the policy must have an assignment provision which states, to the effect: “Assignment of this policy shall not be valid except with the written consent of this company.” But is this rule absolute? California courts have said no.

The case of University of Judaism v. Transamerica Insurance Company,¹ is on point. Here are the facts: The original homeowners transferred their interest in the property to a university; they also transferred and assigned the insurance policies to the university. Shortly thereafter, the property was destroyed by fire. It was not until after the loss that the insurance companies involved were notified that the property and policies had been assigned to the university. One of the three insurance companies endorsed its policy to reflect the change, but the two others asserted that the university had no valid interest in the policies because they did not consent to the assignment prior to the loss. The trial court ruled in favor of the two insurance companies by agreeing to the forfeiture on technical grounds. The court of appeal reversed the trial court judgment with the following reasoning:

In this case, had notice been promptly given prior to the loss, defendants would have routinely approved the assignment of the policy to plaintiff. There was no change in the nature of the activity carried on at the premises. There is no evidence that the change of ownership in any way increased the risk to defendants. Since the change of ownership did not increase the risk to defendants, and they would have routinely approved the assignment, they cannot claim they suffered any prejudice from the late notice.²

The court went further to say:

In effect defendants are asserting that even though they would have approved the assignment as a matter of course, they should have the arbitrary right to disapprove it when the only apparent reason for doing so is that an intervening loss occurred. The arbitrary refusal of consent in such circumstances would be inconsistent with the insurer’s duty of good faith.³

So, the takeaway from this decision is that unless an insurer can demonstrate prejudice by the late notice, it cannot avoid liability by solely relying on the policy’s assignment language providing that the assignment is invalid without written consent on the insurer.

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¹ University of Judaism v. Transamerica Ins. Co., et al. (1976) 61 Cal. App. 3d 937.
² Id., at 942
³ Id.