A recent decision by the United States District Court for the District of Connecticut further confirms that Connecticut courts follow the majority rule that contractual anti-assignment clauses do not bar assignment of an insured’s claim after the loss occurred.1
The September 2022 decision in Am. Guarantee & Liability Ins. Co. v. 51 Roses Mill LLC arose out of a fire that destroyed a property under contract for sale. At the time of the fire, the property was owned by Bridge33 Capital LLC (“Bridge33”), insured by American Guarantee & Liability Insurance Company (“American Guarantee”), and under contract for sale to 51 Roses Mill LLC (“51 Roses”). After the fire, Bridge33 assigned its insurance claim to 51 Roses. American Guarantee filed suit seeking a declaratory judgment that the assignment was invalid, or that, if it was valid, 51 Roses could only recover under the actual cash value, rather than the replacement cost value, of the lost property. 51 Roses brought counterclaims for breach of contract and bad faith and sought a declaratory judgment that it was entitled to replacement cost value under the policy.
Consent is a Condition Precedent
American Guarantee argued that the insurance policy required Bridge33 to seek American Guarantee’s written consent before assigning the insurance claim. Because Bridge33 did not satisfy this condition precedent, American Guarantee argued that assignment was not valid.
In its analysis, the court first noted that insurance companies may limit or even forbid assignments in their insurance policies. However, non-assignment clauses are generally interpreted to mean that the policy itself cannot be assigned. Whether an insured can assign a claim after a loss covered by the policy is a different matter. The court points out that there are two schools of thought on this issue, and the Federal District Court for the District of Connecticut is clearly in the majority camp.
The Majority Rule
The majority of state and federal courts take the position that “a provision in a policy of insurance which prohibits its assignment except with the consent of the insurer does not apply to prevent assignment of claim or interest in the insurance money then due after loss.”2 Pursuant to the majority rule, the purpose of anti-assignment clauses is to protect the insurer from unforeseen exposure and increased liability that could result from assigning the entire policy to an assignee that is a less desirable insured or that would have required a higher premium. However, the need to protect the insurer from these risks no longer exists after the insured sustains the loss because the liability of the insurer is essentially fixed.
The Minority Rule
Courts that observe the minority rule hold that long-standing contract law requires enforcement of unambiguous provisions. Anti-assignment clauses unambiguously forbid assignment of claims prior to written consent of the insurer, particularly in transactions where the parties have equal bargaining power. The minority rule does not make a distinction between pre-loss and post-loss assignments.
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1There has, as yet, been no Connecticut appellate authority on this issue in the insurance context.
2Am. Guarantee & Liability Ins. Co. v. 51 Roses Mill LLC, 3:21-CV-01398 (KAD), slip op at 6 (D. Conn. Sep. 13, 2022)