The assignment of an insurance claim can be seen in a similar light to the assignment of a contractual right or benefit. It is when one confers the financial payment or obligation of the insurer to another making them a beneficiary. It also can be understood as a delegation of the duty to pay an insured’s claim or to be reimbursed for such payment.
To gain a better understanding, a look at Section 317 “Assignment of a Right” which is part of the Restatement of Contracts Law will help you grasp the larger picture. This statute defines the assignment of a contractual right. The section reads as follow:
(1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.
(2) A contractual right can be assigned unless
(a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or
(b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or
(c) assignment is validly precluded by contract.
In other words, it is the transfer of one party’s legal relationship within the contract to confer either a benefit or duty if it does not materially alter the result of the contract or unreasonably burdens one party. Assignments vary in depth and level of accountability depending on the scope of such assignment. An example of this can be seen in life insurance cases where a debt owed by the deceased has not been paid off and the insurer pays the subsidiary that is owed money before the intended beneficiary. This may be a partial payment or full payment depending on the scale of the debt owed and the available funds. The assignment of a policyholder’s interest would be a more general way to understand this concept.
An assignment of an obligation to pay is similar but is from the obligor’s side of a contractual relationship. An employer or other defendant to the claim may be required to pay the plaintiff, but can seek reimbursement from the insurance company that was obliged to pay for the costs sought. This is common in many personal injury scenarios where allocating fault and recovering from the insurance company liable for the claim might not be readily or easily determined and accessible. The fiduciary obligation may be transferred to a third party if permitted by the Court and the contractual language.
An important aspect of assignments that you should be aware of are “anti-assignment” clauses. These are clauses found within the contractual language of your policy that forbids an assignment of the conferred benefits or delegation of contractual obligations. However, the inclusion of an “anti-assignment” clause does not necessarily mean it is enforceable. Its enforceability depends on the contractual law which governs your state or whether it can be seen as conscionable. These clauses may be disputed in Court, but it is important to be aware as a policyholder of the contractual language in your policy to not be caught off guard if an “anti-assignment” clause is included. If present it may void a claim to an insurer’s compensation, so it is important to be aware of these clauses. Often, a third-party will seek the conferment of the contractual legal relationship and they may be barred from doing so if this clause is present.
An assignment may be disputed if it is heavily contested and multiple beneficiaries of an insurance claim seek the insurer’s payment. An attorney may help you analyze your right to an assignment and whether the fiduciary obligation the insurance company has been fully extinguished. This can make the difference between whether you are able to obtain the full cost of the claim or partial payment of what you are entitled to. It may also be the case that an assignment materially alters your benefit as a policyholder to an unconscionable level making the initial reason for entering into the contract pointless. This is not allowed and can be contested because it voids the legal relationship between the two parties because the original purpose to enter into such contract was frustrated and can no longer be served. These are a few circumstances where an assignment can be disputed despite an “anti-assignment clause” even though Courts often strictly construe contractual language that is not contrary to contract law. State Insurance code may also dictate the validity of an assignment clause.
Another issue of concern regarding the assignment of insurance claims is the validity of the underlying claim. For example, if a homeowner has not suffered any real damages to his premises or seeks recovery for a certain property damage that has occurred, it would often be seen as unreasonable to allow a third-party to be assigned the compensation stemming from such claims. Statutory caps on compensation must also be taken into account because a third-party cannot surpass the allowed limit even if they were assigned as a beneficiary. The contractual obligations and limitations are still valid even though the third-party’s rights were assigned rather than created in the original contract.
Administrative regulations and public policy make it difficult to determine the validity of an assignment, so it is important that you become informed to protect your claim. An attorney can help you analyze the contractual language and State law in regard to the assignment of your claim. Many settlements disperse their payments amongst assigned parties so it is an important aspect of your insurance policy that you should keep in mind.