Homeowners hired a water restoration contractor to repair storm damage. The Work Order Agreement contained an assignment of the homeowners’ benefits and causes of action under any applicable insurance policy. Repair invoices were submitted to Homeowners’ insurer, Farmers, who paid what it determined to be the reasonable value of the services, but less than the invoice amount. The contractor, as assignee, sued Farmers for the balance.
Farmers moved to dismiss the lawsuit, arguing it was based upon an invalid assignment. According to Farmers, the policy’s anti-assignment provision precluded the assignment of rights under the policy. The provision states that the insureds’ “interest in this policy may not be transferred to another person without [Farmers’] written consent.”
The contractor countered that the insureds did not assign an interest in the policy, but rather a claim or “chose in action” arising from the policy. The trial court denied Farmers’ motion to dismiss and Farmers filed a Special Action.
The Court of Appeals accepted Special Action jurisdiction because there were over 150 similar cases filed in its jurisdiction. Siding with the contractor, the Court held that a post-loss assignment of the insureds’ claim is valid because, at that point, it is not the policy itself that is assigned, but rather a claim under the policy.
Farmers warned that the Court’s holding, coupled with the broad language of the assignment, would allow insureds to assign not only the collection of a repair invoice, but also extra-contractual claims. In response, the Court specifically limited its holding to a post-loss assignment of contract claims.
Farmers Insurance Exchange v. The Honorable David Udall , et al . , No. 1 CA-SA 18-0081, 2018 WL 2931906 (Ariz. Ct. App. Div. 1 June 12, 2018).
