Can You Assign Your Rights Under an Insurance Policy?
Whether you can assign rights under your insurance policy to someone else is a common issue that many policyholders face. Insurance companies include terms in their policies that prohibit assignment of rights. However, there are circumstances under which an assignment of rights may be necessary, especially after you have already suffered the loss. As a business owner, your best course of action is caution.
You Cannot Assign Rights Before a Loss
An assignment of rights means that you are transferring your coverage under the policy to a third party. From the insurance company’s standpoint, they would want to prohibit an assignment of benefits because it takes away their ability to decide who to insure and how to price their risk. The insurance company’s worry is that the policy rights would be transferred to a party that carries more risk; as a result, the agreed-upon premiums would not actually cover the risk they were insuring. This argument is logical, and the default rule is that you cannot assign policy rights before any loss has occurred.
The insurance policy will usually have a clause that explicitly prohibits the assignment of the policy. The only exception is that the policy may be assigned upon the death of a beneficiary. As long as this language exists in your policy, courts will generally enforce it. The only way that you could assign a policy before a loss is if the insurance company allows it. Usually, they will not.
You Can Assign Rights After a Loss
Whether you can assign rights is a different story after a loss has happened. After a loss, you may transfer the benefit of the policy to a third party. From a policy perspective, this would make sense. After all, the loss occurred on your policy, and you were the one who made payments. The claim is your legal right, and you should have the ability to do with it as you want.
There may be valid reasons why you would want to assign policy rights to someone else. For example, your business could suffer a physical loss. A contractor whom you hire to do the repair job may ask you to assign the rights to your claim to them so they can quickly do the repair work. Generally, this is permissible. This is the same concept that you would find in health insurance when you assign your rights to a doctor who collects payment from the insurer. However, insurance companies have been known to object to this assignment, especially if they have legal difficulty of their own with the contractor.
Be Very Cautious When Assigning Rights
As a business owner, the fact that an assignment of your rights under your policy is an available option does not mean that it is the right course of action. There are some contractors out there who will use this process to take advantage of you or the insurance company. Some contractors have tried to file inflated claims with insurance companies for work or charge for work that they never did.
As a result, you need to be very careful before you assign your rights under the policy. Carefully document the damage yourself and deal with the insurance adjuster on your own. Do not assign the rights under the policy until you are exactly sure of the scope of the damage and the size of the claim. You should always be involved with the insurance company yourself as opposed to letting the contractor handle everything on their own. Never do work with a contractor that wants to deal directly with the insurance company on their own without any of your involvement. The last thing that you want is for a contractor to do thousands of dollars of work, and the insurance company tries to reject the assignment of benefits.
Right now, assignment of benefits is a major battle between insurance companies and contractors. The last place that you want to be is in the middle of the fight, lest you end up holding the bag on a large repair bill or stuck not being able to get critical work done after you suffer major damage. Never sign anything unless you understand every word in the document. If you have any questions, call us, and we are here to assist you.
Contact an Insurance Coverage and Litigation Lawyer
For help with assignment of rights and other insurance coverage disputes, contact attorney Michael J. Faul at Herold Law today. Call us at (908) 647-1022 or contact us to schedule your initial consultation with an experienced insurance coverage lawyer. We could review your policy before you sign or assist with a coverage issue for an existing policy.