MAY 2014 BAD FAITH CASES: COURT WOULD NOT DISMISS BREACH OF CONTRACT AND BAD FAITH CLAIMS ON BASIS OF INSURANCE POLICY’S ANTI-ASSIGNMENT CLAUSE WHEN TIME OF ASSIGNMENT WAS CONSTRUED AS BEING PLEADED TO ARISE AFTER THE LOSS (Philadelphia Federal)
In Charbonneau v. Chartis Property Casualty Co., the plaintiff brought suit against an insurance company, claiming violations of contractual rights to proceeds from an insurance policy that had been assigned to her. The insurer filed a motion to dismiss on numerous procedural grounds (claim preclusion, issue preclusion, accord and satisfaction, and release), but argued in the alternative that the alleged assignee failed to state claims for breach of contract, breach of good faith and fair dealing, bad faith, and tortious interference with a contract.
On the breach of contract and bad faith claims, the insurer’s entire argument was based upon the failure of the alleged assignment, centering upon the non-assignment clause in the policy which prohibited assignments without the carrier’s consent. The court observed that under Pennsylvania law, a non-assignment clause in an insurance contract is not enforceable after the loss has occurred. Egger v. Gulf Insurance Company.
Thus, under the case law, a non-assignment clause prior to the loss understandably limits “the right of the insured to assign his interests in a policy as otherwise some improvident or undesirable assignee might allow the policy to lapse for the nonpayment of premiums.”
However, “[a]fter a loss has occurred, the right of the insured or his successor in interest to the indemnity provided in the policy becomes a fixed and vested right; it is an obligation or debt due from the insurer to the insured, subject only to such claims, demands, or defenses as the insurer would have been entitled to make against the original insured.”
In the instant case, it was not clear exactly when the assignment from the insured to plaintiff-assignee occurred. The assignment clause (in a Lease) existed prior to the loss, but it stated: “If the cost to repair any damage is more than $1,000,000, [plaintiff] may elect to exercise [her] Option, and shall be entitled to receive at closing a credit in the amount of any insurance proceeds paid to [the insured], and an assignment [of] all of [the insured’s] rights to receive any unpaid proceeds.”
Thus, the assignment clause might be interpreted as merely an agreement to assign, and did not become an actual assignment until either a determination that damages from the loss exceeded one million dollars, or when the plaintiff exercised her option to purchase, or at closing.
As the plaintiff-assignee alleged that the insurance policy was assigned to her creating contractual rights between the insurer and her after all three of the above events, and the insurer has not established, as a matter of law, that the assignment did not create those rights, the plaintiff-assignee has sufficiently stated a claim for breach of contract, breach of good faith and fair dealing, and statutory bad faith.