The logjam may have broken in Florida assignment of benefits litigation. Insurers and the bar that represents them have searched for a response a costly wave of costly litigation that has a arisen in recent years where insureds have assigned their homeowners’ insurance proceeds to contractors that perform needed repairs and then submit bills to the insurer that frequently are inflated, touching off litigation in which the contractor (or, more accurately, its lawyer) is emboldened by the threat of recovery of attorneys’ fees. A recent appellate decision may serve up an answer for some insurers.
On September 5, 2018, the Fourth District Court of Appeal held in Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co. that a provision in a homeowner’s insurance policy that “[no] assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagees named in this policy,” was enforceable against a home repair contractor to which the benefits had been assigned.
Acknowledging that a “contractual blanket ban on all assignments would be impermissible,” the Fourth District Court of Appeals indicated that it was answering a “narrow question,” concerning whether “common law or public policy prohibits an assignment of benefits provision that requires the consent of all the insureds and the mortgagee before any assignment.” Rejecting the recent holding of its sister court, the Fifth District Court of Appeals in Security First Ins. Co. v. Florida Office of Ins.Reg, the Restoration 1 court indicated that its decision upheld the parties’ freedom of contract. Here, the contract did not prohibit assignment, but only imposed a permissible condition upon assignment – requiring the approval of all insureds and the mortgagee.
The Restoration 1 court distinguished longstanding precedent of the Florida Supreme Court (dating to 1918) in West Florida Grocery Co. v. Teutonia Fire Ins. Co. There, the question was whether a contractual provision was enforceable where it made an insured’s right to assign benefits subject to the consent of the insurer. The Florida Supreme Court held that where the “policy was assigned after loss,” it was a “well-settled rule that the provision in a policy relative to the consent of the insurer to an interest therein does not apply to an assignment after loss.” The West Florida Grocery Court certainly was presented with a very different question – consent of the insurer being very different from the consent of others who are named in the policy as having an interest in that policy.
But that was not how the Fifth District Court of Appeal saw matters in its 2017 decision in Security First, which arose in the very different context of whether the Florida Office of Insurance Regulation (the “Office”) could prohibit Security First from changing its policy language to include the same sort of provision as was at issue in Restoration 1. The Security First court upheld the Office’s prohibition, contending that such prohibition was compelled by West Florida Grocery. In so holding, the Fifth District Court of Appeal materially altered the quote from West Florida Grocery regarding the “well-settled rule that the provision in a policy relative to the consent of the insurer to an interest therein does not apply to an assignment after loss.” (Emphasis added). The Fifth District Court of Appeal altered that quote to read that “it is a well-settled rule that [anti-assignment provisions do] not apply to an assignment after loss.” (Emphasis added). This revision extended the West Texas Grocery prohibition upon provisions that condition the effectiveness of assignment of benefits after a loss upon an insurer’s consent to an all-encompassing prohibition upon all restrictions of assignments of benefits after a loss. The Restoration 1 Court surely has the better of this disagreement.
Insurers who have similar provisions in their policies now have a powerful tool against lawyer-driven litigation arising from assignments of benefits.