Florida’s Approach to the Assignability of Post-Loss Benefits


In Bioscience West, Inc. v. Gulfstream Prop. & Cas. Ins. Co., No. 2D14-3946, 2016 WL 455723 (Fla. 2d DCA Feb. 5, 2016), the Second District Court of Appeal affirmed the rule in Florida that insureds may, without the insurer’s consent, assign post-loss benefits of an insurance policy to a third party, whether or not the insurance policy contractually prohibits assignment of the policy.

The facts are simple enough: The insured, Elaine Gattus, purchased homeowner’s insurance from Gulfstream Property and Casualty Insurance Company. After executing the policy, Gattus’ property suffered water damage. She then engaged plaintiff Bioscience West to perform “emergency water and removal construction services.” Rather than directly compensating Bioscience West for its services, Gattus assigned the contractor her benefits due under the policy without Gulfstream’s knowledge or consent.

Gulfstream denied coverage, leading Bioscience West to file suit for breach of contract. Gulfstream successfully moved for summary judgment. The circuit court noted the policy’s express language prohibiting the insured from transferring “this policy” to a third party without Gulfstream’s written consent. Bioscience West appealed to the Second District Court of Appeal.

On appeal, Bioscience West’s principle contention was that although the entire policy cannot be assigned absent Gulfstream’s consent, there is no such prohibition for the assignment of a “benefit derived from the policy” once it has accrued. The appellate court agreed with Bioscience West’s position that notwithstanding the policy’s valid prohibition on assignment of the entire policy, the policy as written did not have the effect of prohibiting the post-loss assignment of the right to receive benefits under the policy. In so doing, the court drew the distinction between assignment of the entire policy versus a right thereunder.

It was on these grounds that the Court was able to dispose of the primary issue on appeal, but it nonetheless went on to explain that even if there was language in the policy restricting such an assignment, such language would be of no moment because “Florida case law yields deep rooted support for the conclusion that post-loss assignments do not require an insurer’s consent.”

Other Districts

Relying on the 1918 Florida Supreme Court case W. Fla. Grocery Co. v. Teutona Fire Ins. Co., 77 So. 209 (1918),the First, Second, Third, Fourth, and Fifth districts all follow the rule forwarded by Bioscience West that, although an insurance provider may contractually prohibit or limit outright assignment of an entire insurance policy, post-loss insurance claims are freely assignable, whether or not the insurer consents. Federal courts in Florida have also adopted without exception and alteration the Florida Supreme Court and the five districts’ approach to post-loss assignments of benefits derived from an insurance policy.

Analysis & Implications

At first blush, the assignment of post-loss rights may seem as though it is all pain and no gain for insurers, when there may, in fact, be some benefit. For example, in a case where a plumbing leak, if not swiftly repaired, would lead to substantial damage, the ability to assign a claim could encourage insureds to take prompt action to repair, thereby mitigating damages. In this regard, the Second District concluded that “it is imprudent to place insured parties of the untenable position of waiting for the insurance company to assess damages any time a loss occurs” and that the exigencies of the situation typically render the “unexpected loss event [ ] a time-sensitive procedure” aided by the flexibility afforded under post-loss assignments.

There is, however, a caveat to such post-loss assignments in cases where coverage for a particular incident is disputed. When coverage is disputed, such assignments are inherently prone to the risk that insurers may be sued by assignees of post-loss benefits for breaching the insurance policy when, in reality, there may be no coverage for the loss in the first place. As was the case in Bioscience, the assignor-insured and assignee-contractor executed a general release, thereby precluding an action by the assignee against the assignor for the fees of its work, and will likely contain a waiver of the assignee-contractor’s right to pursue payment via a mechanic’s lien on the repaired property. Thus, even if a claim is clearly beyond the scope of a policy’s coverage, such assignees have an incentive to institute litigation to collect under the policy, even in doubtful circumstances. Meanwhile, the insured is provided with the potential windfall of cost-free repairs for property damage that otherwise would have not been covered under the policy. Rather than venture into a thicket of weighing competing interests, the court in conclusion explained that it is “mindful that there are competing policy considerations here” but declined to address them as such “considerations are for the legislature to decide, not our court.”

The Oregon Supreme Court Overrules the Stubblefield Rule Regarding an Insured’s Ability to Assign Insurance Rights

Oregon has long had a very interesting rule called the Stubblefield Rule, derived from the case of Stubblefield v. St. Paul Fire & Marine Ins. Co., 267 Or. 397 (1973). In Stubblefield, the Oregon Supreme Court held that when an insured enters into a stipulated judgment with a covenant not to execute, the insured is no longer “legally obligated to pay” for purposes of triggering coverage under a CGL policy. Under Stubblefield, a stipulated judgment with a covenant not to execute terminates the insurer’s obligations under the policy to the insured, and, in turn, to the assignor/claimant. The Stubblefield Rule has caused parties to a stipulated judgment to be extremely careful to make sure that the insured’s liability was not eliminated.

Earlier this year, in A&T Siding v. Capitol Specialty Ins. Corp., ___ Or. ___ (Oct. 8, 2015), the Oregon Supreme Court also held that parties to a stipulated settlement with an agreement not to execute could not amend the settlement agreement to revive the insured’s liability for purposes of seeking insurance coverage. Our Capitol Specialty discussion can be found here. As we indicated in our A&T Siding blog post, the Stubblefield Rule was alive and well in Oregon, and we recommended that insurers facing a settlement agreement and covenant judgment should examine the settlement documents carefully to determine whether the agreement released the insured from all liability.

Now, however, the Stubblefield Rule is no longer the law in Oregon. In Brownstone Homes Condo. Assoc. v. Brownstone Forest Heights, LLC, et al., the Oregon Supreme Court acknowledged that Stubblefield “was wrongly decided.” The Court noted that its reasoning in Stubblefield was sparse, the decision was “unsupported by any explanation or analysis,” and the Court neglected to examine the policy language. The Court observed that the majority of jurisdictions have held that “when a covenant not to execute is given in the context of a settlement agreement for valuable consideration (specifically, an assignment of claims), it is a contractual promise not to sue the defendant on the judgment, not a release or extinguishment of the defendant’s legal obligation to pay it.” The Oregon Supreme Court concluded that Stubblefield “erred when it concluded that a covenant not to execute obtained in exchange for an assignment of rights, by itself, effects a complete release that extinguishes an insured’s liability and, by extension, the insurer’s liability as well.”

Nevertheless, insurers should remain mindful of ORS 31.825, which sets forth precise timing requirements to effect a proper assignment of rights against an insurer. Under ORS 31.825, the underlying parties must first reach a settlement, then facilitate entry of judgment, and only then can a valid assignment take place. Insurers should take care to confirm the insured’s compliance with the statute when evaluating an assignment of rights to insurance proceeds.

California Supreme Court Overrules Henkel and Holds Insurer Consent Is Not Required For Policy Assignment After Coverage-Triggering Event Has Occurred

The California Supreme Court held that, regardless of a policy’s consent-to-assignment provision, an insurer’s consent is not required for a valid assignment of a liability insurance policy after a loss has happened. Its holding is based on rarely-cited Insurance Code section 520 (“Section 520”) which states: “[a]n agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.” Further, the Court concluded a loss “happens” when an event giving rise to potentially covered liability takes place, not when a claim is reduced to a fixed sum due. In so holding, the Court overruled Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, which reached a contrary conclusion but did not consider the effect of Section 520.

Hartford issued a series of liability policies to Fluor Corporation, an engineering and construction company. The policies, in effect from 1971 to 1986, contained a consent-to-assignment clause that stated an “[a]ssignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.” Beginning in the mid-1980s, various Fluor entities were sued in numerous lawsuits alleging injuries caused by exposure to asbestos. Hartford defended and settled lawsuits against Fluor over a 25-year period.

In the 1980s, Fluor acquired a mining business, A.T. Massey. But in 2000, Fluor chose to refocus on its core businesses and underwent a corporate restructuring known as a “reverse spinoff.” Fluor created a new subsidiary (“Fluor-2”), with the original Fluor becoming Massey Energy. Under a Distribution Agreement, Fluor transferred its rights and obligations to Fluor-2. Those “rights” encompassed all of Fluor’s assets, including the Hartford policies. Fluor-2 notified Hartford of the restructuring. Hartford did not object and continued to defend Fluor-2 against asbestos lawsuits for another seven years.

In 2006, Fluor-2 filed a coverage action against Hartford regarding issues unrelated to Fluor’s assignment. In a 2009 cross-complaint, Hartford for the first time alleged the purported assignment of its policies to Fluor-2 was invalid without Hartford’s consent. Hartford sought reimbursement of defense and indemnity paid on Fluor-2’s behalf.

Fluor-2 moved for summary adjudication that Section 520 bars enforcement of Hartford’s consent-to-assignment clause “after a loss has happened.” Fluor-2 asserted the underlying asbestos suits alleged exposure while Hartford’s policies were in effect. Thus, the “loss” triggering its duty to defend and indemnify already happened, so claims under the policy were assignable without Hartford’s consent. Hartford argued the Court was duty-bound to follow Henkel, which held an assignment is valid only after a loss has been reduced to a “chose in action” – that is, a fixed sum of money due or to become due.

The trial court agreed with Hartford. Fluor-2 filed a writ which the Court of Appeal denied, concluding Henkel controls. The Court of Appeal also concluded Section 520 only applies to first-party insurance policies, since liability insurance “did not even exist” when the predecessor to Section 520 was enacted in 1872. The Supreme Court granted review to consider the effect of Section 520 on the purported assignment.

The Supreme Court first recounted the history of Section 520 in detail. In 1935, when the Insurance Code was created, third-party liability policies were becoming more common, and Section 520 was included in a “General Rules” section of the Code with other sections defining and applying to liability insurance. Section 520 was modified in 1947 to exclude two specific classes of insurance (life and disability, not liability). The Supreme Court disagreed with the Court of Appeal and concluded Section 520 applies to both first-party and third-party insurance policies.

The Court then considered how Section 520 applies in the liability insurance context. The issue turns on the meaning of the phrase “after a loss has happened,” which the Court concluded is ambiguous. Fluor-2 asserted a loss “happened” when a claimant was exposed to asbestos while the Hartford policies were in effect, so Fluor’s assignment of its rights under the policies to Fluor-2 in 2000 was valid. In contrast, Hartford asserted a loss happens when the insured incurs a direct loss by judgment or settlement fixing a sum of money due. The Court concluded that both interpretations are reasonable.

However, the Court reasoned that the legislative history of Section 520, as well as early cases addressing assignment of policies, favor Fluor-2’s view. Early cases distinguish an insured’s inability to assign a policy as to future events (substituting another insured for the risk the insurer evaluated) from an insured’s right to assign a claim after a loss. Regarding the timing of loss, the Court concluded an insurer’s contingent liability to its insured becomes “fixed” when an accident or event takes place for which the insured may be responsible. A claim need not be reduced to a discrete sum for a loss to have occurred.

The Court stated this is the majority view across the country and was expressed in case law decided before the 1947 amendment of Section 520, so the rule was part of the “legal landscape” at that time. The Court also reasoned the notion that loss “happens” at the time of the injury during the policy period is consistent with its holdings in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645 and State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, in which the Court equated “loss” with bodily injury and property damage, rather than a money judgment or settlement.

The Court rejected various arguments by Hartford, including that the Court is bound to follow Henkel and that its reliance on a relatively obscure statute is misplaced. The Court overruled Henkel to the extent it is inconsistent.

Click here for the opinion.

This opinion is not final. It may be modified on rehearing or review may be granted by the United States Supreme Court. These events would render the opinion unavailable for use as legal authority.