Appellate courts in Florida and Oklahoma this week upheld the right of policyholders to assign their right to collect benefits from an insurance claim to contractors, reversing trial court rulings in favor of insurers.
The Oklahoma Supreme Court on Wednesday reaffirmed a ruling it made in 1957: Contractual language that prohibits an insurance policy to be assigned to another does not bar a policyholder from assigning his or her right to collect from an insurance policy after a loss occurs.
The Florida 3rd District Court of Appeals ruled Tuesday that an insurer cannot get around a century of case law by placing the assignment-of-benefits prohibition in the application for insurance instead of the policy. The appellate panel held that the application is part of the policy under Florida law, and courts have held since 1917 that an insurance contract cannot take away a policyholder’s right to assign benefits after a loss.
Samuel Alexander, who represented Extreme Emergency Fire & Water Restoration against Lloyd’s of London on appeal in the Florida case, said it was the latest attempt by the insurance industry “to get around established case law.”
“They tried to get the 3rd DCA, basically, to overrule the Florida Supreme Court,” he said during a telephone interview Wednesday.
Alexander, who owns the Alexander Appellate Law practice in the Orlando suburb of DeLand, said insurers may be emboldened because of numerous conservative appointments to the state supreme court in the past few years. He said the high court, however, has strict rules that will prevent it from hearing any appeal that would allow it to overturn past precedent without conflicting rulings from the appellate districts.
In Extreme Emergency’s case, Lloyd’s argued that it negotiated the language that bars assignments of benefit, which is why the language was placed in the application for insurance. The policyholder received a lower rate by agreeing to accept the restriction, the carrier said.
“This is pure freedom of contract case,” Appellate attorney Clinton D. Flagg told the 3rd DCA during oral arguments.
Chief Judge Kevin Emas responded that he couldn’t see how Lloyd’s argument would overturn long-standing precedent that prohibitions against assignment of benefits go against public policy.
“It seems to me the only difference is that the insurance company decided to give it a go to put it in the application instead of the policy,” he said.
Extreme Emergency billed Lloyd’s $18,458.39 for repairs made to Julio and Nora Lugones house in Homestead, Fla. Lloyd’s refused to pay, citing the anti-assignment agreement in the signed insurance application.
Miami-Dade County Circuit Court Judge Martin Zilber granted summary judgment in Lloyd’s favor. He accepted the insurer’s argument that its case is unique, relative to previous rulings that upheld policyholders’ right to assign benefits, because the parties had negotiated the provision.
The 3rd DCA reversed. “Applying a century of well-established Florida law to this 2017 contract of insurance, the anti-assignment provision was ineffective to prevent or restrict the insured from making a post-loss assignment of the right to payment of a claim without the insurer’s consent, and the fact that the anti-assignment clause was placed in the application, rather than the policy itself, is immaterial,” the appellate panel said in an opinion written by Emas.
In the Oklahoma case, Tokiko Johnson and Triple Diamond Construction sued after CSAA General Insurance Co. refused to pay the $36,346.05 that the contractor requested to repair wind damage to her home. The carrier said the policy it issued to Johnson prohibited her from assigning benefits without its consent.
CSAA argued that a law passed in 1957, Insurance Code Section 6055(D), states that a policy “may be assignable or not assignable, as provided by its terms.” Attorneys for Triple Diamond countered that Johnson did not assign the policy to her contract, only her right to collect benefits after a loss.
The District Court of Oklahoma County granted CSAA’s motion to dismiss the lawsuit and Triple Diamond appealed.
The state Supreme Court said generally, insurers and insureds can contract to whatever terms they please, but there are exceptions. In American Alliance Ins. Co. of N.Y. v. McCallie, the Oklahoma Supreme Court ruled in 1957 that an assignment of benefits is not the policy and its coverage, but a right to receive funds following a loss.
The court cited 1880 decisions by courts in Wisconsin and Michigan and the 1917 decision in Florida, all of which upheld policyholders’ rights to assign benefits and found any contractual provisions that purported to restrict that right invalid as a matter of public policy.
The act of assigning one’s rights to something that is not in one’s possession, such as a debt, is known as a “chose in action.”
“Insurer points to no language in Johnson’s policy defining the term ‘policy’ as including an assignment of a chose in action,” the court said in its unanimous decision.
Attorney Aaron Stiles of the Downtown Law Group in Norman, Okla., who represented Triple Diamond on appeal, said the insurer’s litigation strategy continues a long effort by insurers “to put homeowners on an island” by preventing them from handing over their insurance claims to contractors. He said the Oklahoma County court’s decision to bar an assignment was a rare win that was bound to overturned on appeal.
“There has not been any doubt that I know of on the policyholder side,” he said. “They just had their heads in the sand hoping it was true that policyholders didn’t have these rights.”
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