On a certified question from the Federal District Court, the Supreme Court of Kentucky decided that an anti-assignment provision in a policy is unenforceable. Wehr Constructors v. Paducah Div. Assur. Co. of Am., 2012 Ky. LEXIS 183 (Ky. Oct. 25, 2012).
Before building an addition to its hospital, Murray Calloway County Hospital purchased a builder's risk policy from Assurance Company of America.The policy provided, "Your rights and duties under this policy may not be transferred without Assurance's written consent . . . ." The Hospital contracted with Wehr Constructors to install concrete subsurfaces and vinyl floors in order to expand the hospital. After installation, a portion of the floors and subsurface work was damaged. The Hospital submitted a claim to Assurance for $75,000, but the claim was denied.
Wehr sued the Hospital to recover money for its work on the construction project. In settling the case, the Hospital assigned to Wehr any claim or rights the Hospital had against Assurance. When Wehr sued Assurance in federal court, Assurance moved for judgment on the pleadings, arguing that the anti-assignment barred coverage. The Federal District Court certified a question to the Kentucky Supreme Court asking whether an anti-assignment clause requiring written consent before assigning a claim under a policy was enforceable.
The Kentucky Supreme Court reviewed the majority and minority positions across the country. Under the majority rule, an anti-assignment clause was unenforceable once an occurrence took place because at that point the insured was entitled to recovery under the policy. The right was a chose in action, or a form of personal property. The anti-assignment provision was a restraint upon the alienation of this property right and, therefore, contrary to public policy.
The rationale for the majority view was that an anti-assignment clause ordinarily only prohibited the assignment of the policy itself, but did not apply to the assignment of a claim arising under the policy. The purpose of an anti-assignment clause was to protect the insurer from unforeseen exposure and increased liability that may ensue if the policy was assigned to an entity that the insurer did not want to insure. After the insured loss, however, the insurer's risk was not increased by a change in the identity of the party to whom payment was to be made.
The minority rule held that the unambiguous language of an anti-assignment clause should be enforced as written.
Looking to public policy, the court determined that restraints on alienation were not viewed favorably. The anti-assignment provision was in opposition to rules relating to restraints upon the alienability of chosen in action. Therefore, the court adopted the majority position. This conflicts with Hawaii where the Supreme Court adopted the minority position five years ago in Del Monte Fresh Produce (Haw.), Inc. v. Fireman's Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (Haw. 2007).
