Insurance: Assignability of Property Damage Claim Against Insurer

Farmers Ins. Exch. V. Udall, __Ariz. Adv. Rep. __ 1 CA-SA 18-0081 (App. Div. I, June 12, 2018) (J. McMurdie)

CLAIM FOR PROPERTY DAMAGE AGAINST INSURER AFTER LOSS OCCURS MAY BE ASSIGNED TO THIRD PARTY DESPITE POLICY LANGUAGE PROHIBITING TRANSFER OF AN INTEREST IN THE POLICY

Four homeowners hired EcoDry Restoration [EcoDry] to repair water damage to their homes. Each homeowner was insured by Farmer Insurance Exchange [Farmers] and assigned their right to benefits under their policies to EcoDry. Farmers refused to pay the EcoDry bills in full so EcoDry sued Farmers. Farmers brought this special action when the trial court denied its motion to dismiss alleging an unenforceable assignment.  The Arizona Court of Appeals accepted jurisdiction and denied relief.

Farmers motion to dismiss was based upon an “anti-assignment” clause in its policy which states “interest in this policy may not be transferred to another person without [Farmers'] written consent.”

The court of appeals held that while the general rule is that an indemnity insurance policy cannot be assigned, especially when it is expressly prohibited by the policy, once a loss occurs the assignment is not of the policy itself but an assignment of the right of action on the policy. The general rule exists because an insurer has the right to choose its insured so as to know its risks. As a result, once the chosen insured has already suffered the risk, the purpose of the rule is met and the assignment is allowed whether the amount claimed is undisputed or not. This result is further supported by Arizona's Consumer Fraud statute (Ariz. Rev. Stat. § 20-461(A)(7) which expressly states insurers cannot “restrict an assignment of a loss or claim after a loss has occurred.”