Policyholders asserting claims against an insurer for damages arising from a fire, environmental contamination or other causes need to pay close attention to the “fine print” contained in their policy.  Assigning a claim without a thorough understanding of the policy terms is risky and may violate the provisions of the policy and render the assignment, and possibly coverage, void.  The New Jersey Appellate Division recently ruled that an anti-assignment clause in a homeowner insurance policy did not invalidate the assignment of benefits from the homeowner to a vendor.

In CPR Restoration and Cleaning Services, LLC v. Franklin Mut. Ins. Co., No. A-3858-10T2 (App. Div. June 21, 2012), Lou Witherspoon hired CPR Restoration and Cleaning Services, LLC to cleanup the damage to his home caused by a fire.  Witherspoon subsequently assigned to CPR his rights under the insurance policy issued by Franklin Mutual Insurance Company.  Franklin Mutual did not consent to the assignment.

The policy provided that “[n]o assignment of this policy or an interest here is binding on [Franklin Mutual] without [Franklin Mutual’s] written consent.”  Although Franklin Mutual settled with Witherspoon, CPR was not compensated for the work it performed and subsequently sued both Franklin Mutual and Witherspoon.

Franklin Mutual filed a motion for summary judgment.  The lower court on reconsideration held that because Franklin Mutual never agreed to be bound by the purported assignment, it was not obligated to pay CPR for services rendered.

On appeal, the Appellate Division reversed, initially noting that the purported assignment made by Witherspoon was “not an assignment of a policy, as Franklin Mutual argue[d], but an assignment of a right to receive payment under the policy.”  The court relying on the decision of the Elat, Inc. v. Aetna Cas. and Sur. Co., 280 N.J. Super. 62 (App. Div. 1995), held that Witherspoon’s assignment of his rights under the policy did not materially change Franklin Mutual’s duty.

The court next considered whether the anti-assignment clause in the policy prohibited the assignment of the claims.  The court noted that for an anti-assignment clause to void an assignment, it must state that “non-conforming assignments (i) shall be “void” or “invalid,” or (ii) “that the assignee shall acquire no rights or the a non-assigning party shall not recognize any such assignment.”  The court concluded that because the necessary language was lacking, the anti-assignment clause in the policy was simply a covenant not to assign, and the assignment of the claim to CPR was, therefore, valid.