Many policyholders forget that their insurance policy is a contract and is subject, with exceptions, to the usual laws of contract. An issue that frequently arises is whether the named insured is able to assign insurance proceeds under the policy to another. The answer to that question is dependent on the type of coverage sought.
What Is an Assignment Provision?
An assignment provision is a contractual clause that allows the policyholder to transfer their rights and obligations under the policy to another party. Assignment provisions enable things like transferring property insurance from one homeowner to another in case of a sale or assigning a life insurance policy to a beneficiary as a gift. Assignment provisions also allow business insurance to be assigned as part of a merger.
Can I Assign My Insurance Policy Without the Insurer’s Consent?
You cannot assign an insurance policy without the insurer’s consent before a loss has occurred. Because insurance policies are a contract, each party must consent to the terms of the contract. In fact, most insurance policies have a “consent to assignment clause” that typically provides that: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.”1 This clause is designed to protect the insurer from having to extend coverage to an entity it never agreed to cover. There are, of course, exceptions.
Can an Insurance Company Refuse to Honor an Assignment?
Yes, an insurance company can refuse to honor an assignment, though the exact circumstances vary by state and by policy. In California, for instance, the enforceability of the clause depends on both the timing of the assignment and whether the claim is a first party loss — where the insured is seeking benefits for, say, a sunk ship or a burned building — or a third party claim, which protects insured in certain instances when the insured might be liable to another.
With respect to first-party claims, insurers have a vested interest in their personal relationships with the named insureds, and before a loss, a legally recognized need to prevent non-consensual assignments to less responsible insureds.2 Remember that a policy is a contract; the insurer has the right to understand and agree to any underwriting risks they may be taking on with the transference of the policy.
After a first-party loss, however, the insurer’s need to consent dissipates, because any assignment is only of money already due under the contract; any right of the insured as a result of the loss may be assigned with or without the consent of the insurer. Thus, the consent to assignment clause is deemed unenforceable after a first-party loss has occurred.3
In a 2003 California Supreme Court Case, Henkel Corp. v. Hartford Accident & Indemnity Co., the Court determined that a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s liability coverage in the absence of an insurer-approved assignment regardless of when the assignment took place.4 However, the court overturned that precedent in 2015’s Fluor Corp. v. Superior Ct., in which the Court found that “after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss.”5
Are Assignment Clauses Enforceable?
As we saw above, the enforceability of “consent-to-assignment” 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.
What Is an Anti-Assignment Clause in an Insurance Policy?
An anti-assignment clause is a contractual provision that prohibits or restricts the policyholder from transferring their rights or obligations under the policy to another party. There can be exceptions; for example, some policies may allow assignments in certain circumstances in case of the death or incapacitation of the policyholder. Like assignment provisions, anti-assignment clauses vary by policy, state, and circumstance; it is a good idea to consult an experienced attorney when dealing with insurance.
Further Resources on Insurance Coverage Law
Navigating the complexities of insurance claims can feel overwhelming. Whether you’re facing unpaid claims or simply filing for the first time, our eBooks equip you with the crucial information you need to advocate for yourself with confidence.
- Filing A Property Insurance Claim
- Insurance Company Response Time
- What To Do When You Have a Denied/Underpaid Claim
- Wildfire Claims
- Flood Claims Handbook
- More Information on Hurricane Deductible and Policy Limits
- Condominium Hurricane Preparedness
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1 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, 934.
2 Bergson v. Builders Ins. Co. (1869) 38 Cal. 541, 545.
3 Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229, 232 [house destroyed by fire before close of escrow; affirming assignment by sellers to buyers of right to recover proceeds under fire insurance policy].
4 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, 934.
5 Fluor Corp. v. Superior Ct., 61 Cal. 4th 1175, 1183, 354 P.3d 302, 305 (2015).
