ATTENTION INSURANCE COMPANIES! It’s time to look closely at those anti-assignment clauses
The New Hampshire Supreme Court (the “Court”) recently issued an opinion that will have insurance companies taking a much closer look at their anti-assignment clauses. In a controversial decision handed down November 15, 2022, the Court addressed the appeal of an order granting Defendant State Farm Mutual Automobile Insurance Company’s (“Defendant”) motion to dismiss an action brought by Plaintiff Keene Auto Body (“Plaintiff”) for failure to cover the full costs of repairs to a vehicle.
The case in controversy began when Caleb Meagher (the “insured”) brought his vehicle into Plaintiff’s auto repair shop to fix the covered damage his vehicle sustained in an accident. (The vehicle was insured by Defendant). Defendant and Plaintiff each provided the insured with an estimate of costs. However, Plaintiff’s estimate was higher and included some repairs that Defendant’s estimate did not. Without obtaining approval from Defendant, the insured instructed Plaintiff to perform the repairs in accordance with its estimate. When Defendant refused to pay the extra costs, the insured assigned his rights under the insurance policy to Plaintiff, and Plaintiff sued Defendant to obtain the balance.
The Defendants argued that the anti-assignment clause contained in the insurance policy prevented the insured from assigning his rights under the policy to Plaintiff. In addressing this argument the Court began by interpreting the clause, which read: No assignment of benefits or other transfer of rights is binding upon us unless approved by us. Defendant argued that the term “benefits” not only applies to pre-loss attributes enjoyed by the insured but also to post-loss rights and claims as well. Additionally, Defendant noted the policy’s broad prohibition on “transfer of rights” included no qualifying language, meaning it should be read to include any and all possible legal rights afforded to an insured. The Court agreed with these points, finding Defendant’s reading of the clause reasonable.
However, the Court also found merit in Plaintiff’s interpretation of the policy provision, which summarized that the anti-assignment clause only applied to pre-loss assignments, while post-loss assignments of benefits and rights were acceptable. The Court explained that the purpose of an anti-assignment clause in an insurance policy context is to protect the insurer from increased liability. However, once the loss has already been realized and the insurer’s liability is established, the insurer’s risk cannot be increased by a change in the insured’s identity, and a reasonable insured would interpret the anti-assignment provision as such. The Court found that the parties differing interpretations of the clause demonstrated a reasonable disagreement and therefore must be construed against the insurer, in favor of the insured, and subsequently reversed and remanded for proceedings consistent with its opinion.
The Court did note that it would express no opinion as to whether an unambiguous clause prohibiting the assignment of post-loss claims would be enforceable, leaving the insurance industry in a state of flux regarding how to handle anti-assignment clauses going forward. It could be that a more specific and detailed clause could serve to prohibit both pre- and post-loss assignments, however, it could also be that the Court will now hold all post-loss anti-assignment provisions invalid in general. We will just have to wait and see.
You can contact Alfano Law Office at (603) 856-8411 or at this link.