Friday, July 12, 2024

The Appellate Court of Maryland Holds That an Anti-assignment Clause Can Void the Attempted Assignment of an Insurance Claim.

In re Featherfall Restoration, LLC., 261 Md. App. 105 (2024)

This matter is about an insurance policy dispute between Travelers and two (2) insurance policy holders G.K. and K.K. (the Insured). The insurance policy had a provision expressly stating that “[a]ssignment of this policy will not be valid unless we [Travelers] give our written consent.” On May 20, 2020, the Insured notified Travelers of purported wind and hail damage to their home’s roof that they believed occurred on June 2, 2019. On May 20, 2020, prior to filing a claim, the Insured hired Featherfall Restoration, LLC (“Featherfall”) to repair the roof. On June 2, 2020, Travelers sent a claim representative to inspect and evaluate the damages. On June 19, 2020, Travelers sent a letter to the Insured notifying them of the denial of the claim, because the Travelers representative identified signs of wear to the roof shingles but did not find wind or hail damage on the roof or other exterior portions of the house. On that same day, Featherfall emailed Travelers an assignment of claims document and a legal opinion that the assignment was lawful despite the anti-assignment provision drafted by Featherfall’s legal counsel. Featherfall tried to discuss the denial with Travelers representatives, but they declined to discuss the denial and took the position that the anti-assignment clause meant  Featherfall had no interest in the claim.

Featherfall filed an administrative complaint against Travelers with the Maryland Insurance Administration (“MIA”). Featherfall argued that it had the same rights under the policy as the insured including the right to discuss the denial of the claim. Travelers again took the position that the anti-assignment clause was valid, enforceable, and consistent with Maryland insurance law. MIA found that Travelers was only obligated to pay and adjust claims in accordance with Maryland laws and the policy. Further, the MIA found that Travelers actions were not arbitrary and capricious, lacking in good faith, or in violation of the insurance article. On judicial review, the Circuit Court for Baltimore City affirmed MIA’s decision and denied Featherfall’s request for a declaratory judgment.

        On appeal Featherfall argued that the anti-assignment clause only applied to the entire policy, not a claim; and that Maryland allows post-loss assignments because they are the same as any chosen action. Travelers argued that the plain language in the contract invalidated the assignment, and if the Court found that it was legal to assign the claim without prior approval it would make the contract toothless.

        The Appellate Court of Maryland held that the anti-assignment clause provision was enforceable and did not run afoul of Maryland insurance law. First, the Court found that in the most recent cases considered by the Maryland Supreme Court it found that anti-assignment clauses were valid even if it was a post-loss assignment. For comparison, the Court also noted that the Maryland General Assembly added provisions in the Insurance Article that expressly require health insurers to recognize all assignments but did not create a similar provision for property insurance companies. Additionally, the Court found that Travelers’ interpretation was correct and reading the contract to allow for any assignment as long as it was not the whole policy, would make the clause meaningless, which violates Maryland law that forbids courts from interpreting a clause in contracts in such a way that it is rendered meaningless.  Finally, the Court found that Featherfall did not have standing to bring a MIA claim in this matter, because if the assignment was void, than any interest and rights that flowed from that assignment, including the right to a MIA hearing, were not valid.

Fernando D. Kirkman, Esquire (Associate)