Anti-Assignment Clause Does Not Bar Post-Loss Claim Assignment Per Tenth Circuit

UPDATE: On April 15, 2014, the Tenth Circuit vacated its opinion in the City Center West, LP v. American Modern Home Ins. Co. matter in an order on the insurer’s petition for rehearing insurer’s petition for rehearing.  The insurer filed a motion for reconsideration based on evidence establishing that the insured property was re-assigned back to the mortgagee.  The Tenth Circuit granted the motion for reconsideration on the grounds that the issue before it was moot at the time of the hearing.


On February 6, 2014, a panel of the Tenth Circuit Court of Appeals issued a published opinion addressing the enforceability of an anti-assignment clause in an insurance policy in City Center West, LP v. American Modern Home Ins. Co., 741 F.3d 1338 (10th Cir. 2014).  The case involved a bank that procured an insurance policy—through its blanket insurance policy—on a commercial property mortgaged to it by a borrower.  The insurance policy contained an anti-assignment provision, which prohibited an assignment “of this Policy” without the insurance company’s consent.  The insured property was damaged by vandalism and burglary.  It was estimated that the cost to repair the damage would exceed $3.5 million.  After the insured property was damaged, the bank assigned its claim under the policy to the borrower.  The insurance company never consented to the assignment.  After the claim assignment, the insurance company denied the borrower’s claim on the basis of the anti-assignment provision.

The borrower sued the insurance company in the U.S. District Court for the District of Colorado alleging claims for bad faith, breach of the insurance contract, and violations of the Colorado insurance statutes.  The insurance company filed a motion to dismiss in the district court on the grounds that the assignment from the bank to the borrower prohibited the anti-assignment clause and that the borrow was not a third-party beneficiary.  The district court granted the motion to dismiss.  The borrower then appealed to the Tenth Circuit Court of Appeals, which reversed the district court and found the assignment was proper.

The Court of Appeals framed the issue as “whether the Policy’s restriction on assignment of ‘this Policy’ forbids assignment of a post-loss claim under the Policy.”  It drew a distinction between assignment of the policy and assignment of a claim, finding that the bank did not assign the entire policy to the borrower; instead, the bank assigned a claim that was made under the policy.  The insurance company argued that the term “policy” captures any rights that flow from the insurance contract, including claims made under the policy.  The Court of Appeals rejected the argument, however, citing a number of authorities from other jurisdictions that have concluded an anti-assignment clause applies only to pre-loss assignments.  The court also cited to Colorado contract law supporting the ability of a party to assign payment of money due under a contract, which it analogized to post-loss assignment of an insurance claim.

MLR’s attorneys have experience with complex insurance coverage issues, including the enforceability and applicability of anti-assignment clauses.  Please contact us with any questions about this case or anything else you see on the website.

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