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

07/12/2024

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)