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What Is an Anti-Assignment Clause?
Anti-Assignment Clauses Explained
- Definition and Example
How Anti-Assignment Clauses Work
- State Laws and Anti-Assignment Clauses
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An anti-assignment clause is a provision in an insurance policy that bars the policyholder from transferring their rights under the policy to another party. The clause prohibits the insured from authorizing someone else to file claims, make changes, or take other actions under the policy.
Many small businesses purchase insurance policies that contain an anti-assignment clause, which may affect their ability to conduct certain routine business transactions. For instance, if your property is damaged and you hire a contractor to make repairs, the clause may bar you from allowing the contractor to collect loss payments directly from your insurer. In addition, some restrictions found in anti-assignment clauses may be overridden by state laws. Below, we’ll explore further what an anti-assignment clause is and how it works.
Definition and Example of an Anti-Assignment Clause
An anti-assignment clause is language found in an insurance policy that forbids the policyholder from assigning their rights and interests under the policy to someone else without the insurer’s consent. The clause is usually found in the policy conditions section.
Alternate name : Assignment clause, Non-assignment clause
An example of an anti-assignment clause is wording contained in the standard Insurance Services Office (ISO) business owners policy (BOP) . You can find it in the Common Policy Conditions (Section III) under the heading “Transfer of Your Rights and Duties Under This Policy.” The clause states that your rights and duties under the policy may not be transferred without the insurer’s written consent. However, if you are an individual named on the policy and you die, your rights will be transferred to your legal representative.
An anti-assignment clause may not include the word “assignment” but instead refer to a transfer of rights under the policy.
Anti-assignment clauses prevent policyholders from transferring their rights under the policy to someone else without the insurer’s permission. The clauses are designed to protect insurers from unknown risks. Insurers evaluate insurance applicants carefully before they agree to provide coverage. They consider an applicant’s business experience, loss history, and other factors to gauge their susceptibility to claims. When an insurer issues a policy, the premium reflects the insurer’s assessment of the applicant’s risks. If the policyholder transfers their rights under the policy to another party, the insurer’s risk increases. This is because the insurer hasn’t had an opportunity to evaluate the new party’s risks.
The following example demonstrates how an anti-assignment clause in an insurance policy can affect a business.
Theresa is the owner of Tasty Tidbits, a pastry shop she operates out of a commercial building she owns. She has insured her business for liability and property under a business owners policy. Theresa decides to take a one-year sabbatical from her business and asks her friend Ted to manage Tasty Treats during her absence. Theresa signs a contract assigning her rights under Tasty Tidbits’ BOP to Ted.
If a loss occurs, Ted may have no right to file a claim or collect benefits under the policy on Tasty Treats’ behalf. The assignment is barred by the anti-assignment clause in the BOP.
Effect of State Laws on Anti-Assignment Clauses
Many states have enacted laws via a statute or court ruling that override anti-assignment clauses in insurance policies. These laws may invalidate all or a portion of a policy’s anti-assignment provision. While the laws vary, many bar pre-loss assignments but permit assignments made after a loss has occurred. Assignments made before any losses have occurred are prohibited because they increase the insurer’s risks. Post-loss assignments don’t increase the insurer’s risks, so they generally are permitted.
Some states prohibit any assignment of benefits made without the insurer’s consent, whether the assignment occurred before or after a loss.
Here's an example of how a state law can impact an anti-assignment clause in an insurance policy. Suppose that Theresa (in the previous scenario) has returned from her sabbatical and is again operating her business. Tasty Treats is located in a state that bars pre-loss assignments but allows assignments made after a loss has occurred.
Late one night, a fire breaks out in the pastry shop and a portion of the building is damaged. Theresa files a property damage claim under her BOP and hires Rapid Reconstruction, a construction company, to repair the building. At the contractor’s suggestion, Theresa assigns her rights to receive benefits for the claim under the BOP to Rapid Reconstruction. Because Theresa has assigned her rights after a loss has occurred, the assignment is permitted by law and should be accepted by Theresa’s insurer.
- Many policies purchased by small businesses contain an anti-assignment clause.
- An anti-assignment clause bars the policyholder from assigning their rights and interests under the policy to someone else without the insurer’s consent.
- Many states have a statute or court ruling that overrides anti-assignment clauses in insurance policies.
- State laws vary, but many prohibit pre-loss assignments yet permit assignments made after a loss has occurred.
Canopy Claims. " Business Owners Coverage Form ," Page 53.
Penn State Law Review. " If You Give a Shop a Claim: The Unsustainable Inequity of Pennsylvania’s Unbridled Post-Loss Assignments ."
Stahl, Davies, Sewell, Chavarria & Friend. " Buyers and Sellers Beware - Assignment of Hurricane Claims May Be Invalid in Texas ."
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- Practical Law
Assignment of insurance policies and claims
Practical law uk practice note w-031-6021 (approx. 19 pages).
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Can You Assign Your Rights Under an Insurance Contract that Prohibits Assignment? Only for Prior, Fixed Losses
Parties to a contract generally can include in their agreement a provision preventing assignment of the agreement’s rights and remedies without the consent of both parties. Because a party’s assignment of rights under a contract to a third party may have serious implications for both sides in the performance of that agreement, anti-assignment clauses protect the contracting parties by ensuring that no transfer of the agreement’s rights occurs without the consent of all involved. Dance with the date you brought. And absent fraud, unconscionability, or some other reason to invalidate the contract, courts generally enforce those anti-assignment clauses.
In the insurance context, however, the enforcement of anti-assignment clauses are more complicated. Because insurers—like any contractual party—have a legitimate interest in protecting themselves from insureds assignment of the insurance agreement to a different, perhaps more risky party, anti-assignment clauses in insurance agreements are enforceable against assignments that occur prior to a covered loss . Arrowood Indem. Co. v. Atlantic Mut. Ins. Co . , 96 AD3d 693, 694 [1st Dept 2012]. But in circumstances where the assignment occurs after the covered loss , New York courts are more critical of anti-assignment clauses. In those circumstances, courts reason, there is no increased risk to the insured; the loss already occurred, and the only thing that changes as a result of the assignment is who the insurer will need to pay for that loss.
Certain Underwriters At Lloyd’s, London v AT&T, Corp. , 2021 N.Y. Slip Op. 31740[U] , a recent decision by New York Commercial Division Justice Cohen , the Court explores the exceptions to the general rules regarding anti-assignment clauses in insurance policies. Ultimately, the case underscores the difficulties insurers face in disclaiming coverage by enforcement of an anti-assignment clause in the policy.
The dispute in Certain Underwriters stems from the coverage dispute between Nokia of America Corporation and the several insurers who issued policies to Nokia’s predecessor, AT&T, for a series of asbestos liabilities that Nokia inherited from AT&T.
In 1996, AT&T restructured its global organization into three independent businesses by execution of a tri-party Separation and Distribution Agreement (the “SDA”). As part of the SDA, AT&T transferred to Lucent (now Nokia) all “right, title, and interest in all Lucent Assets.” The SDA clarified:
[T]he parties intend by this Agreement that Lucent and each other member of the Lucent Group be successors-in-interest to all rights that any member of the Lucent Group may have as of the Closing Date as a subsidiary, affiliate, division or department of AT&T prior to the Closing Date under any policy of insurance issued to AT&T by any insurance carrier unaffiliated with AT&T[,] . . . including any rights such member of the Lucent Group may have as an insured or additional named insured, subsidiary, affiliate, division or department, to avail itself of any such policy of insurance . . . as in effect prior to the Closing Date.
(SDA § 7.1 [c] [emphasis added]). The SDA also provided for Nokia to assume all of certain liabilities arising out of certain lines of AT&Ts businesses.
Since at least 1996, Nokia has been sued in thousands of asbestos-related lawsuits stemming from pre-1996 operations of certain AT&T businesses. AT&T (what remains after the SDA) also is sued in these asbestos cases; often times, Nokia and AT&T are named as codefendants by the same plaintiff.
AT&T sought coverage for the asbestos-related suits under its insurance policies. The massive and protracted Certain Underwriters case consolidates all of coverage-related disputes between AT&T and its insurers.
Nokia, as successor in interest to AT&T’s insurance policies, also sought coverage for the asbestos-related suits in which it is named as a defendant. The insurers who issued loss policies to AT&T denied Nokia coverage, arguing that: (i) the plain language of the SDA did not assign to Nokia the rights under their policies, and (ii) even if the SDA did assign those rights, the insurance agreements’ anti-assignment clauses prohibited such assignments.
Justice Cohen Grants Nokia’s Motion for Summary Judgment
Nokia moved for summary judgment on a narrow issue: is it an insured party under AT&Ts legacy policies by virtue of AT&T’s assignment of those policies in the SDA? Or, as the insurers argue, was AT&T’s purported assignment of its insurance policies to Nokia in the SDA invalid?
Justice Cohen made short work of the insurers’ argument that the plain language of the SDA was insufficient to assign to Nokia the rights under the operative insurance policies. The fact that the SDA did not use “use talismanic words like ‘assign’ or ‘transfer’ is immaterial,” the Court held, since “[t]he text of the SDA demonstrates, in several ways, the contracting parties’ intent to assign AT&T’s rights under the Legacy Policies.”
A much closer question, however, was the effect of the anti-assignment clauses in the operative policies. The Court acknowledged that the general rule—anti-assignment clauses in insurance agreements do not prohibit assignments occurring after the covered loss—is subject to a critical exception: a post-loss assignment may nonetheless be barred by an anti-assignment clause where the assignment materially increases the risk on the insured. See Globecon Group, LLC v Hartford Fire Ins. Co . , 434 F3d 165, 171 [2d Cir 2006] [“Under New York law, a no-transfer clause may, in certain unusual circumstances, remain valid as to some pre-transfer claims even though the loss occurred before the transfer]).
For example, in Holt v. Fidelity Phoenix Fire Ins. Co , 273 AD 166, 168 [3d Dept 1948], a fire forced the closure of a movie theatre and the theatre’s owner made a claim for lost profits under its business interruption insurance. When the theatre owner sold the business a few days later, the new owner tried to make a claim for the lost profits that he incurred after he bought the business. In the subsequent coverage suit, the Third Department sided with the insurer, reasoning that although the fire occurred before the assignment, the assignment of the lost profits policy was invalid because it materially increased the risk to the insurers, who never agreed to pay the lost profits of some other business.
Here, the insurers argued that even though the covered losses ( i.e ., the alleged asbestos exposure) occurred before the SDA, AT&T’s assignment to Nokia was invalid under the policies’ anti-assignment clauses because that assignment materially increased the insurers’ risk and costs under the policies. Specifically, the assignment to Nokia wrongly the insureds to insure two corporations instead of one, AT&T and Nokia. And because the two corporations are often named in the same suit, defense costs and potential liabilities were multiplied. The insurers pointed to a case in which Nokia and AT&T, as co-defendants, failed to cooperate in the defense of an asbestos claim and instead reached separate settlements with the plaintiff for vastly different sums. Having to pay both of those settlements, the insureds argued, was proof positive of their increased risk.
The Court rejected the insurers’ argument that the increased costs of having to defend Nokia and AT&T materially increased the insurers risk such that the anti-assignment clause should be enforced. The Court reasoned that unlike the business interruption losses claimed in Holt , the asbestos-based losses here are the same now as if the assignment had not occurred. Increased defense costs, standing alone, is not grounds to invalidate the assignment. If that were the case, the Court reasoned, there would never be a permissible assignment of “insurance rights between entities that face common litigation threats, because any such assignment could drive up total defense costs to the insurer.”
Moreover, the Court held that the Insurers had plenty of contractual mechanisms to keep defense costs in check, including defense cooperation provisions. With sharp oversight, the insureds can keep their defense costs from ballooning.
Those restructuring their business or otherwise considering assigning their rights under an insurance agreement must tread carefully. The agreement’s anti-assignment provision likely will invalidate coverage for any after-arising claims and for prior claims with losses that are speculative at the time of assignment (such as loss profits). But Certain Underwriters offers some measure of comfort; that the assignment may potentially result in increased defense costs is, without more, insufficient to invalidate an assignment.
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Insurance Policy Consent to Assignment Clauses
Many policyholders forget that their insurance policy is a contract and is subject, with exceptions, to the usual laws of contract. An issue that frequently arises is whether the named insured is able to assign insurance proceeds under the policy to another. The answer to that question is dependent on the type of coverage sought.
Most insurance policies have a “consent to assignment clause” that typically provides: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.” 1 This clause is designed to protect the insurer from having to extend coverage to an entity it never agreed to cover. In California, the enforceability of the clause depends on both the timing of the assignment and whether the claim is a first party loss – where the insured is seeking benefits for a sunk ship or a burned building, or a third party claim, which protects insured in certain instances when the insured might be liable to another.
With respect to first party claims, insurers have a vested interest in their personal relationships with the named insureds, and before a loss , a legally recognized need to prevent non-consensual assignments to less responsible insureds. 2 After a first party loss , however, the insurer’s need to consent dissipates, because any assignment is only of money already due under the contract and any right of the insured as a result of the loss may be assigned with or without the consent of the insurer; thus the consent to assignment clause is deemed unenforceable. 3 With respect to third party claims, the California Supreme Court held in Henkel that the consent to assignment clause is enforceable and, as a result, a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s liability coverage in the absence of an insurer-approved assignment regardless of when the assignment took place. 4
The enforceability of “consent-to-assignment” clauses is dependent on the law of each particular state. Always check with an attorney before making an assignment of policy benefits to another, regardless of the situation.
1 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 , 943. 2 Bergson v. Builders Ins. Co. (1869) 38 Cal. 541, 545. 3 Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229 , 232 [house destroyed by fire before close of escrow; affirming assignment by sellers to buyers of right to recover proceeds under fire insurance policy]. 4 Henkel , supra , 29 Cal.4th at p. 944.
- Assignment Clause
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Assignment clause defined.
Assignment clauses are legally binding provisions in contracts that give a party the chance to engage in a transfer of ownership or assign their contractual obligations and rights to a different contracting party.
In other words, an assignment clause can reassign contracts to another party. They can commonly be seen in contracts related to business purchases.
Here’s an article about assignment clauses.
Assignment Clause Explained
Assignment contracts are helpful when you need to maintain an ongoing obligation regardless of ownership. Some agreements have limitations or prohibitions on assignments, while other parties can freely enter into them.
Here’s another article about assignment clauses.
Purpose of Assignment Clause
The purpose of assignment clauses is to establish the terms around transferring contractual obligations. The Uniform Commercial Code (UCC) permits the enforceability of assignment clauses.
Assignment Clause Examples
Examples of assignment clauses include:
- Example 1 . A business closing or a change of control occurs
- Example 2 . New services providers taking over existing customer contracts
- Example 3 . Unique real estate obligations transferring to a new property owner as a condition of sale
- Example 4 . Many mergers and acquisitions transactions, such as insurance companies taking over customer policies during a merger
Here’s an article about the different types of assignment clauses.
Assignment Clause Samples
Sample 1 – sales contract.
Assignment; Survival . Neither party shall assign all or any portion of the Contract without the other party’s prior written consent, which consent shall not be unreasonably withheld; provided, however, that either party may, without such consent, assign this Agreement, in whole or in part, in connection with the transfer or sale of all or substantially all of the assets or business of such Party relating to the product(s) to which this Agreement relates. The Contract shall bind and inure to the benefit of the successors and permitted assigns of the respective parties. Any assignment or transfer not in accordance with this Contract shall be void. In order that the parties may fully exercise their rights and perform their obligations arising under the Contract, any provisions of the Contract that are required to ensure such exercise or performance (including any obligation accrued as of the termination date) shall survive the termination of the Contract.
Security Exchange Commission - Edgar Database, EX-10.29 3 dex1029.htm SALES CONTRACT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1492426/000119312510226984/dex1029.htm >.
Sample 2 – Purchase and Sale Agreement
Assignment . Purchaser shall not assign this Agreement or any interest therein to any Person, without the prior written consent of Seller, which consent may be withheld in Seller’s sole discretion. Notwithstanding the foregoing, upon prior written notice to Seller, Purchaser may designate any Affiliate as its nominee to receive title to the Property, or assign all of its right, title and interest in this Agreement to any Affiliate of Purchaser by providing written notice to Seller no later than five (5) Business Days prior to the Closing; provided, however, that (a) such Affiliate remains an Affiliate of Purchaser, (b) Purchaser shall not be released from any of its liabilities and obligations under this Agreement by reason of such designation or assignment, (c) such designation or assignment shall not be effective until Purchaser has provided Seller with a fully executed copy of such designation or assignment and assumption instrument, which shall (i) provide that Purchaser and such designee or assignee shall be jointly and severally liable for all liabilities and obligations of Purchaser under this Agreement, (ii) provide that Purchaser and its designee or assignee agree to pay any additional transfer tax as a result of such designation or assignment, (iii) include a representation and warranty in favor of Seller that all representations and warranties made by Purchaser in this Agreement are true and correct with respect to such designee or assignee as of the date of such designation or assignment, and will be true and correct as of the Closing, and (iv) otherwise be in form and substance satisfactory to Seller and (d) such Assignee is approved by Manager as an assignee of the Management Agreement under Article X of the Management Agreement. For purposes of this Section 16.4, “Affiliate” shall include any direct or indirect member or shareholder of the Person in question, in addition to any Person that would be deemed an Affiliate pursuant to the definition of “Affiliate” under Section 1.1 hereof and not by way of limitation of such definition.
Security Exchange Commission - Edgar Database, EX-10.8 3 dex108.htm PURCHASE AND SALE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1490985/000119312510160407/dex108.htm >.
Sample 3 – Share Purchase Agreement
Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties, and any attempted assignment without the required consents shall be void.
Security Exchange Commission - Edgar Database, EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm >.
Sample 4 – Asset Purchase Agreement
Assignment . This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, at any time after the Closing, are freely assignable by Buyer. This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, are assignable by Seller only upon the prior written consent of Buyer, which consent shall not be unreasonably withheld. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.
Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.
Sample 5 – Asset Purchase Agreement
Assignment; Binding Effect; Severability
This Agreement may not be assigned by any party hereto without the other party’s written consent; provided, that Buyer may transfer or assign in whole or in part to one or more Buyer Designee its right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to either party, in which event the parties shall use reasonable commercial efforts to arrive at an accommodation that best preserves for the parties the benefits and obligations of the offending provision.
Security Exchange Commission - Edgar Database, EX-2.4 2 dex24.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1002047/000119312511171858/dex24.htm >.
Common Contracts with Assignment Clauses
Common contracts with assignment clauses include:
- Real estate contracts
- Sales contract
- Asset purchase agreement
- Purchase and sale agreement
- Bill of sale
- Assignment and transaction financing agreement
Assignment Clause FAQs
Assignment clauses are powerful when used correctly. Check out the assignment clause FAQs below to learn more:
What is an assignment clause in real estate?
Assignment clauses in real estate transfer legal obligations from one owner to another party. They also allow house flippers to engage in a contract negotiation with a seller and then assign the real estate to the buyer while collecting a fee for their services. Real estate lawyers assist in the drafting of assignment clauses in real estate transactions.
What does no assignment clause mean?
No assignment clauses prohibit the transfer or assignment of contract obligations from one part to another.
What’s the purpose of the transfer and assignment clause in the purchase agreement?
The purpose of the transfer and assignment clause in the purchase agreement is to protect all involved parties’ rights and ensure that assignments are not to be unreasonably withheld. Contract lawyers can help you avoid legal mistakes when drafting your business contracts’ transfer and assignment clauses.
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Assignment clause, page actions.
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Assignment clause determines which rights and responsibilities can be transferred from one party of the contract to another one, they mainly protects against increased risk .
The assignment clause specifies who a new assigned entity can be ; also it may provide that a contract may only be attributed to creditor who has almost the same features to the original creditor  .
The assignment clause in property insurance policies
In every insurance policy is rooted risk , the risk that the insurer has thoroughly checked everything before insuring the insured. The most important entity that the insurer checks is of course the insured itself. Characteristic of the insured is important in the context of coverage of property by another person but also the attention is paid to life insurance, civil liability and medical insurance. For example, the level of risk shown by the insured is a kind of operation, which leads to the nature of the individual and other relevant factors  .
The insurer takes into account whether the risk he gave did not increase through factors such as change of identity or characteristics of the insured. Insurers bear a risk, which they try to prevent by limiting the insured, the ability to transfer coverage rights (under an insurance policy) to another entity or another person. This type of restriction is implemented by including in the policy a sentence that concerns non-transferability or can counteract the change.
The insured's risk and its characteristics determine if the insurer will ensure coverage and in what amount  .
Issues covered by considerations of anti-assignment clause against transfer  :
- the applicable law to check whether there are any limits on the anti-department clauses
- conditions should be provided if one party is entitled to assign under certain conditions, it is very important to determine conditions as precisely as possible
It is important to include an appropriate assignment clause that determines who can become new assigned party . The assignment clause may contain information that the contract can be appropriate only for people who are able to participate in HIPC (Heavily Indebted Poor Countries) initiatives or for entities that are members of the Paris club (it is a group of people from creditor countries; their role is to find solutions to monetary problems in countries that are debtors).
As indicated earlier, the assignment clause may provide that the contract may be attributed to a person (creditor) who has almost the same features as the original creditor  .
Examples of Assignment clause
- A company may include an assignment clause which states that neither party shall assign any of its rights or obligations under the contract without the prior written consent of the other.
- An assignment clause may also specify that if either party does assign its rights or obligations, it is responsible for any losses suffered by the other party as a result of the assignment.
- A contract may also contain a clause that requires any assignment to be in writing and signed by both parties.
- An assignment clause may also provide that any attempt to assign the contract without the prior written consent of the other party shall be void.
- An assignment clause may also provide that any assignment does not relieve either party from its obligations under the contract.
- An assignment clause may also require the assignee to comply with all the terms and conditions of the contract, as if they were the original party.
Advantages of Assignment clause
An Assignment clause is a useful tool for protecting the rights and responsibilities of the parties involved in a contract. It ensures that any transfer of rights and responsibilities from one party to another does not increase the risk for either party. The following are the main advantages of having an Assignment clause in a contract:
- It allows for the rights and responsibilities set out in the contract to be transferred to another party with the consent of all the parties involved. This can be useful if one of the parties wants out of the contract and wants to transfer their rights and responsibilities to someone else.
- It also helps to protect the parties involved from increased risk. When a contract is assigned, the original parties are no longer liable for any of the obligations or risks, and the new party assumes responsibility for them.
- An Assignment clause can also help to ensure that all of the parties comply with their obligations, as any breach of the contract by one party can be transferred to the other party without the need to renegotiate the contract.
- Finally, it can help to ensure that the parties to the contract are aware of any changes that are being made and that all parties are in agreement with the changes.
Limitations of Assignment clause
An Assignment clause is an important part of the contract that determines which rights and responsibilities can be transferred from one party of the contract to another. However, there are certain limitations to this clause that can limit its effectiveness. These include:
- It is important to specify the exact conditions under which a party can be assigned to another party, otherwise it can be difficult to enforce.
- The clause may not be binding on third parties, as they may not be aware of it.
- It is important to ensure that the assignment does not increase the risk of the other party, as this may not be covered by the clause.
- The clause should not be used to assign contractual obligations that are not intended to be assigned.
- The clause may not be legally enforceable in certain jurisdictions, depending on the laws of the country.
- The clause may not be applicable in certain circumstances, such as when the parties are in different countries.
- The clause may not be able to address certain issues, such as termination of the contract or changes in the terms and conditions.
Other approaches related to Assignment clause
An Assignment clause is only one of the approaches that can be taken in order to protect against increased risk in a contract. Other approaches include:
- Subrogation Clause – This clause specifies that in the event of a dispute, any party involved in the contract must take over the rights and obligations of another party. This clause typically includes a limitation on the amount of liability that can be transferred.
- Indemnification Clause – This clause requires one party to reimburse another for any losses or damages caused by any breach of contract. This clause typically includes a limitation on the amount of damages that can be recovered.
- Limitation of Liability Clause – This clause limits the amount of damages that any party can be held liable for in the event of a breach of contract.
- Choice of Law Clause – This clause specifies which law will be used to interpret and enforce the contract. This clause helps to ensure that any disputes are resolved according to the laws of the jurisdiction specified in the clause.
In conclusion, there are a variety of approaches that can be taken to protect against increased risk in a contract. An Assignment clause is only one of these approaches, and it should be used in conjunction with other clauses in order to ensure that all parties are adequately protected.
- ↑ (Sigman H. C.,(2009) p. 165)
- ↑ (Colinvaux C.M., (2010), vol. 39, p. 1)
- ↑ (Colinvaux C.M., (2010), vol. 39, p. 2)
- ↑ (Adams C. M., (2014) p. 295-296)
- ↑ (Sookun D. (2010), p. 75)
- Adams C. M. and others (2014) Drafting Contracts in Legal English: Cross-border Agreements Governed by U.S. Law , Wolters Kluwer Law & Business, p. 295-296
- Colinvaux C. M. and others (2010) The Assignment Clause in First-Party Property Insurance Policies. , vol 39, p. 1-2
- Sigman H. C. and others (2009) Cross-border Security Over Receivables , Sellier. European law publisher, p. 165
- Sookun D. (2010) Stop Vulture Fund Lawsuits: A Handbook , Commonwealth Secretariat, p. 75.
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How Does Your Insurance Policy’s “Assignment of Benefits” Clause Affect You?
When homeowners suffer a property loss, one of the first things they do – even before they know the amount of coverage they will receive from their insurer – is call a contractor. The contractor looks at the damage, and estimates the likely cost of repairing the property. Maybe that estimate is greater than the coverage amount the homeowner expects the insurance company to pay out.
In this instance, the contractor will sometimes suggest that the homeowner enter into an “assignment of benefits” (AOB) arrangement. Under this side contract, the contractor agrees to accept as payment whatever the insurance company pays for the insured’s property loss claim.
Such AOB deals can be a major problem.
For one thing, most contractors know very little about insurance coverages and the art of negotiating optimal coverage payouts. The insurance company may initially offer $60K, for example, in a situation where an experienced public adjuster could have secured almost twice that amount. The contractor might take the $60K, and then discover that amount isn’t enough to get the repair job done properly. The contractor then must skimp and cut corners, resulting in a shoddy repair job for the unsuspecting homeowner.
At common law, insureds were prohibited from assigning their insurance policy benefits and other underlying rights. State legislatures, however, have allowed AOB, and many state courts will permit the assignment of insurance policies.
The problems stemming from AOB have led to a mountain of litigation and debates about whether it should be allowed at all. Insurance carriers are happy to allow AOB, because contractors present an easy mark and often accept low-ball claim offers. The contractors, meanwhile, are serving two masters – handling the insured’s claim, as well as taking money to do repairs. That’s exactly why the National Association of Public Insurance Adjusters (NAPIA) doesn’t allow contractors to be PAs and do this type of work.
We recently spoke with Brian Goodman, General Counsel of NAPIA, who calls the practice of AOB “ripe with the possibility of harming consumers and making it so the insured never gets properly indemnified.” We agree.
NAPIA is working with the National Association of Insurance Commissioners (NAIC) to eradicate the practice of AOB. There is some resistance because of an unwillingness to infringe on an individual’s right to contract with somebody. But, in our view, any use of AOB really harms consumers.
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How Does Your Insurance Policy's “Assignment of Benefits” Clause Affect You? When homeowners suffer a property loss, one of the first things