The Louisiana Supreme Court considered a certified question from the Fifth Circuit regarding the applicability of anti-assignment provisions in homeowners' policies. In Re: Katrina Canal Breaches Litigation, 2011 La. Lexis 1118 (La. May 10, 2011).
The Fifth Circuit asked,
Does an anti-assignment clause in a homeowner's insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer's consent, bar an insured's post-loss assignment of the insured's claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?
The back-story involved the efforts to provide relief after Hurricanes Katrina and Rita. Congress appropriated relief funds, administered by HUD, to affected states. Louisiana distributed some of its funds to the "Road Home" program, which provided grants of up to $150,000 to Louisiana homeowners to repair uninsured and under-insured property damaged by the hurricanes. Before funds were issued, the homeowners had to sign a "Limited Subrogation/Assignment Agreement" whereby any claims of future rights to reimbursement were assigned to the State. This meant some grant-eligible homeowners had little motivation to file claims or challenge low insurance settlements. Consequently, there was a one billion dollar projected shortfall in the Road Home program.
To remedy the situation, the State sued more than 200 insurance companies pursuant to the assignments to recover under the funds granted under the Road Home program. The insurers moved to dismiss, arguing that the State's claims failed as a matter of law because anti-assignment clauses in the policies invalidated the purported assignments to the State. The federal district court denied the motion to dismiss, holding that the contractual anti-assignment provisions did not bar post-loss assignments under Louisiana law.
On appeal, the Fifth Circuit certified the question to the Louisiana high court. The state Supreme Court's analysis started with a statute which provided, "A right cannot be assigned when the contract from which it arises prohibits the assignment of that right." The court considered whether this provision, which would appear to prohibit even post-loss assignments, violated public policy.
The court recognized that allowing an insured to assign its right to the proceeds of an insurance policy (post-loss) did not modify the insurer's risk. The insurer's obligations were fixed at the time the loss occurred, and the insurer was obligated to cover the loss agreed to under the policy.
Nevertheless, Louisiana law did not limit the parties' right to prohibit the assignment of insurance proceeds. There was no public policy in Louisiana favoring free assignability of claims over freedom of contract. Nor was there a public policy to prevent parties from contractually prohibiting post-loss assignments. Insurers could limit their liability and impose reasonable conditions upon the policy obligations absent a conflict with a statute or public policy.
The court instructed, however, that the languge of the anti-assignment clause must clearly and unambiguously express that it applied to post-loss assignments.