The Arizona Court of Appeals upheld the insured's assignment of benefits despite the policy's anti-assignment provision. Farmers Ins. Exchange v. Honorable David Udall, 2018 Ariz. Ct. App. LEXIS 94 (Ariz. June 12, 2018).
Farmers issued homeowners' policies to four homeowners who later required water damage mitigation and restoration services. Each of the policies included an anti-assignment provision stating that the insured's "interest in this policy may not be transferred o another person without [Farmers'] written consent." Each insured, however, signed a "Work Order Agreement & Assignment of Benefits" authorizing the remediation company, EcoDry Restoration of Arizona, LLC, to perform emergency water mitigation services and then assign insurance rights under the policies to EcoDry. The assignment authorized and instructed the insurance company to pay directly to EcoDry the amount shown in the final billing for work done by EcoDry.
Farmers did not consent to any of the assignments. Although Farmers made payment to EcoDry, it was an amount less than the invoice total. EcoDry then filed suit alleging the insured had assigned to EcoDry their "post-loss rights" under the policies and that Farmers breached the policies by refusing to pay the amount charged to the insureds. Farmers moved to dismiss the complaint arguing EcoDry did not have a contractual relationship with Farmers nor a valid assignment of the insureds' rights under the policies. The superior court denied the motion and Farmers petitioned the Court of Appeals for special action review.
On appeal, the court noted that Arizona law recognized that contractual provisions prohibiting assignment without consent could be enforceable. The general rule was that an indemnity insurance policy could not be assigned, especially where an assignment was expressly prohibited by the terms of the policy, unless the insurer consented. An assignment made after a loss occurred, however, was not of the policy itself, but a claim under, or a right of action on, the policy.
Here, the insureds executed the assignments after water damaged their homes, giving rise to their claims under the policies. The insureds did not assign their policies to EcoDry, but rather they assigned a claim under and a right of action on the policies. Therefore, the assignments were valid post-loss assignments of benefits under the policies. As the recipient of a post-loss assignment of benefits, EcoDry stood in the shoes of the insureds and had standing to enforce the policy against Farmers.