Background

In Bioscience West, Inc. v. Gulfstream Prop. & Cas. Ins. Co., No. 2D14-3946, 2016 WL 455723 (Fla. 2d DCA Feb. 5, 2016), the Second District Court of Appeal affirmed the rule in Florida that insureds may, without the insurer’s consent, assign post-loss benefits of an insurance policy to a third party, whether or not the insurance policy contractually prohibits assignment of the policy.

The facts are simple enough: The insured, Elaine Gattus, purchased homeowner’s insurance from Gulfstream Property and Casualty Insurance Company. After executing the policy, Gattus’ property suffered water damage. She then engaged plaintiff Bioscience West to perform “emergency water and removal construction services.” Rather than directly compensating Bioscience West for its services, Gattus assigned the contractor her benefits due under the policy without Gulfstream’s knowledge or consent.

Gulfstream denied coverage, leading Bioscience West to file suit for breach of contract. Gulfstream successfully moved for summary judgment. The circuit court noted the policy’s express language prohibiting the insured from transferring “this policy” to a third party without Gulfstream’s written consent. Bioscience West appealed to the Second District Court of Appeal.

On appeal, Bioscience West’s principle contention was that although the entire policy cannot be assigned absent Gulfstream’s consent, there is no such prohibition for the assignment of a “benefit derived from the policy” once it has accrued. The appellate court agreed with Bioscience West’s position that notwithstanding the policy’s valid prohibition on assignment of the entire policy, the policy as written did not have the effect of prohibiting the post-loss assignment of the right to receive benefits under the policy. In so doing, the court drew the distinction between assignment of the entire policy versus a right thereunder.

It was on these grounds that the Court was able to dispose of the primary issue on appeal, but it nonetheless went on to explain that even if there was language in the policy restricting such an assignment, such language would be of no moment because “Florida case law yields deep rooted support for the conclusion that post-loss assignments do not require an insurer’s consent.”

Other Districts

Relying on the 1918 Florida Supreme Court case W. Fla. Grocery Co. v. Teutona Fire Ins. Co., 77 So. 209 (1918),the First, Second, Third, Fourth, and Fifth districts all follow the rule forwarded by Bioscience West that, although an insurance provider may contractually prohibit or limit outright assignment of an entire insurance policy, post-loss insurance claims are freely assignable, whether or not the insurer consents. Federal courts in Florida have also adopted without exception and alteration the Florida Supreme Court and the five districts’ approach to post-loss assignments of benefits derived from an insurance policy.

Analysis & Implications

At first blush, the assignment of post-loss rights may seem as though it is all pain and no gain for insurers, when there may, in fact, be some benefit. For example, in a case where a plumbing leak, if not swiftly repaired, would lead to substantial damage, the ability to assign a claim could encourage insureds to take prompt action to repair, thereby mitigating damages. In this regard, the Second District concluded that “it is imprudent to place insured parties of the untenable position of waiting for the insurance company to assess damages any time a loss occurs” and that the exigencies of the situation typically render the “unexpected loss event [ ] a time-sensitive procedure” aided by the flexibility afforded under post-loss assignments.

There is, however, a caveat to such post-loss assignments in cases where coverage for a particular incident is disputed. When coverage is disputed, such assignments are inherently prone to the risk that insurers may be sued by assignees of post-loss benefits for breaching the insurance policy when, in reality, there may be no coverage for the loss in the first place. As was the case in Bioscience, the assignor-insured and assignee-contractor executed a general release, thereby precluding an action by the assignee against the assignor for the fees of its work, and will likely contain a waiver of the assignee-contractor’s right to pursue payment via a mechanic’s lien on the repaired property. Thus, even if a claim is clearly beyond the scope of a policy’s coverage, such assignees have an incentive to institute litigation to collect under the policy, even in doubtful circumstances. Meanwhile, the insured is provided with the potential windfall of cost-free repairs for property damage that otherwise would have not been covered under the policy. Rather than venture into a thicket of weighing competing interests, the court in conclusion explained that it is “mindful that there are competing policy considerations here” but declined to address them as such “considerations are for the legislature to decide, not our court.”