Understanding How Insurance Policy Conditions Apply When There is an Assignment of Benefits

October 20, 2016

Florida first-party property insurers have seen a dramatic rise in assigned insurance claims. In the typical scenario, an insured assigns her rights to receive insurance proceeds from a loss to a contractor in return for the contractor’s agreement to prevent additional loss or to make repairs. Florida law has allowed assignments of benefits (“AOBs”) for nearly 100 years, so long as the AOB itself satisfies the requirements of a valid contract. See W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 210-11 (Fla. 1917) and First Ins. Co. v. State, Office of Ins. Regulation, 177 So. 3d 627, 628 (Fla. 1st DCA 2015). 

One question that often arises when an insurer is handling an assigned claim is “can the insurer request that the assignee/contractor satisfy the post-loss conditions of the insurance policy?” Such post-loss conditions typically take the form of submitting a sworn statement in proof of loss, submitting to an examination under oath, providing documents, and exhibiting the damage. Insurers often ask “if the assignee/contractor is stepping into the shoes of the insured by way of the AOB, shouldn’t the assignee/contractor be required to satisfy the post-loss conditions of the insurance policy too?”

This issue was addressed by Florida’s Fifth District Court of Appeal in the case of Shaw v. State Farm Fire & Cas. Co., 37 So. 3d 329, 333 (Fla. 5th DCA 2010) disapproved of on other grounds by Nunez v. Geico Gen. Ins. Co., 117 So. 3d 388 (Fla. 2013). In Shaw, an injured motorist assigned his insurance benefits to a chiropractor in exchange for treatment. When the chiropractor made a claim to the insurer, the insurer requested the chiropractor submit to an examination under oath. The chiropractor refused, and the insurer then refused to pay his claim. The chiropractor sued for a declaration that he was not required to fulfill the conditions of the insurance policy despite receiving the AOB from the insured.

The trial court ruled in favor of the insurer, but the Fifth District Court of Appeal (“5DCA”) reversed. The 5DCA held that the assignment of a contract right does not also transfer the duties of the insurance policy to the assignee unless the assignee specifically assumes those duties. Id. at 332. As such, the insurer could not require the assignee/chiropractor to fulfill the insurance policy obligation of submitting to an examination under oath.

However, the 5DCA noted that, just because there has been an AOB, that does not relieve the insured from having to comply with the post-loss conditions of the insurance policy. The 5DCA held “[a]ssignment of a right to payment under a contract does not eliminate the duty of compliance with contract conditions, but a third-party assignee is not liable for performance of any duty under a contract.” Id. In that regard, an insurer can still request compliance with the post-loss conditions of the insurance policy, but it is the insured (not the assignee) who must comply.

If the insured fails to comply with the requested post-loss condition, that may amount to a material breach of the insurance policy that relieves the insurer from any obligation to pay the claim. See Goldman v. State Farm Fire Gen Ins. Co., 660 So. 2d 300, 303 (Fla. 4th DCA 1995) (failure to submit to an examination under oath) and Edwards v. State Farm Fla. Ins. Co., 64 So. 3d 730, 732-33 (Fla. 3d DCA 2011) (failure to submit to an examination under oath and provide requested documents). 

If the insured materially breaches the insurance policy by failing to comply with a requested post-loss condition, that breach will be imputed to the assignee and can bar the assignee’s claim as well. On that point, the 5DCA held in Shaw that “[i]f the assignor is entitled to be paid, the assignee is entitled to be paid, but if the assignor is not entitled to be paid because of some failure of performance on the part of the assignor, then the assignee is not entitled to be paid either.” 37 So. 3d at 333.

Florida’s Third and Fourth District Courts of Appeal have held similarly. See Citizens Prop. Ins. Corp. v. lfergane, 114 So. 3d 190, 197 (Fla. 3d DCA 2012) (holding that an insured’s failure to submit to an examination under oath barred the assignee’s recovery) and Kroener v. Florida Ins. Guar. Ass’n, 63 So. 3d 914, 916 (Fla. 4th DCA 2011) (explaining the insured’s failure to timely report a loss barred the assignees’ claim).

In conclusion, an insurer cannot require an assignee to satisfy the post-loss conditions of the insurance policy unless the assignee has specifically agreed to assume and perform those duties. However, an insurer can require its insured to satisfy the post-loss conditions of the insurance policy even if the insured has executed an AOB. If the insured fails to satisfy the post-loss conditions of the insurance policy, that may bar the assignee’s claim.

For any further questions, please contact Timothy Engelbrecht.