Let’s start with the basics. If you, as a homeowner, sustain property damage or losses because of a covered event (like a fire, for example), you will need your home repaired. You choose a contractor or restoration company to do the work – but the check from the insurance company has not come through yet, and you need them to start right away. So, what can you do?
You can sign an “assignment of claim,” which assigns your rights (as the policyholder) to benefits and proceeds from the loss, to the company or contractors. In the simplest of terms, the assignment of claim allows your contractor to get paid directly from the insurance company.
What is the anti-transfer clause in insurance?
However, many contractors and purchasers of the damaged property have found themselves in a tight spot over the years, because of something called the anti-transfer clause. As explained on the Tennessee Insurance Litigation Blog, the anti-transfer clause usually reads something like this: “Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.” Sometimes, the insurance company requires written consent before an assignment of claim can be made.
This clause routinely allows insurers to deny payments to contractors – but it shouldn’t, when an assignment of claim is made post-loss.
What’s the difference between pre-loss vs. post-loss assignments?
The Courts of Tennessee have routinely ruled on behalf of contractors and purchasers who were assigned the claim after the loss occurred. That is because the original assignee – the homeowner – was approved by the insurance company in the first place, and because the damage occurred regardless. There was no additional risk for the insurance company. Therefore, even if the contractor has a long and storied history of rule-breaking (or even criminal activity), the homeowner can assign the claim however he or she chooses; after all, the loss already happened.
Where insurance companies can (and do) have a leg up is for pre-loss assignments. The insurance company underwrote the risk on Bob and Jane Homeowner because it felt confident enough to do so. Bob and Jane cannot assign their policy to another person without the approval of the insurer, even when no loss has occurred.
Even if there is an anti-transfer clause in your policy, the chances are very good that a post-loss assignment cannot be legally denied by your insurer. If it is, seek out an experienced insurance dispute lawyer to help you argue the denial.
One last note for Tennessee policyholders
In some cases, the insurance company may decide that the amount of your loss is worth less than the cost of the renovations for which the contractor is charging. If this happens, you could be on the hook for the remainder of the costs, depending, of course, on the language of the deal with your contractor.
Because of this risk, it’s wise to contact an attorney before making any decisions. Get informed about your rights from the start, and let your lawyer address any potential hiccups along the way. If your insurer lowballs your claim, your attorney can handle the dispute, to ensure that you are compensated fairly.
At McWherter Scott & Bobbitt, we have spent years fighting against unfair insurance claims policies in Tennessee and Mississippi. Let Brandon McWherter, Jonathan Bobbitt and Clint Scott put their knowledge and experience to work for you. Please call 731-664-1340 or fill out our contact form. We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.