424 P.3d 420
Ariz. Ct. App.2018Background
- Four homeowners insured by Farmers suffered water damage and hired EcoDry for mitigation and restoration; each signed a Work Order assigning to EcoDry their “rights, benefits, proceeds and causes of action” under their Farmers policies.
- Each policy contained an anti-assignment clause forbidding transfer of the insured’s interest without Farmers’ written consent; Farmers did not consent to the assignments.
- EcoDry billed Farmers directly; Farmers paid less than EcoDry’s invoices and refused to pay in full.
- EcoDry sued Farmers for breach of contract under the assigned post-loss claims; Farmers moved to dismiss for lack of privity and invalid assignment, and the superior court denied the motion.
- Farmers sought special action review arguing anti-assignment clauses bar EcoDry’s suit; the court accepted jurisdiction because the issue was a pure question of law and statewide significance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insureds can assign post-loss claims despite policy anti-assignment clause | EcoDry: post-loss assignments of a chose-in-action are valid; EcoDry has standing to sue as assignee | Farmers: anti-assignment clause bars any assignment; assignment invalid and no privity | Court: post-loss assignments of claims are valid; EcoDry stands in insureds’ shoes and may sue under the policies |
| Whether assignments allow assignee to challenge insurer’s valuation/payments | EcoDry: assignee can enforce full policy rights, including challenging insurer’s payment decisions | Farmers: assignments should be limited to undisputed sums; assignee cannot contest insurer’s determinations | Court: assignee may challenge insurer’s determination; assignments transfer the insured’s rights subject to insurer’s defenses |
| Whether assignments materially increase insurer’s risk or alter obligations | EcoDry: assignments do not change insurer’s contractual obligations or defenses | Farmers: allowing assignments increases insurer expense and risk, affecting premiums and obligations | Court: assignments do not change insurer’s duties or defenses; insurer retains all defenses and rights under policy |
| Scope of relief available to assignee (e.g., bad-faith claims) | EcoDry limited its pleading to breach of contract for unpaid repair costs | Farmers: assignments might allow claims beyond policy obligations | Court: addressed only breach of contract claim; did not decide assignment of bad-faith claims and held assignee is subject to same policy obligations and defenses |
Key Cases Cited
- United Verde Extension Mining Co. v. Ralston, 296 P. 262 (Ariz. 1931) (assignee of a chose-in-action may prosecute claim in own name)
- Aetna Cas. & Sur. Co. v. Valley Nat'l Bank of Ariz., 485 P.2d 837 (Ariz. Ct. App. 1971) (post-loss assignment is assignment of claim, not of the policy itself)
- St. Paul Fire & Marine Ins. Co. v. Allstate Ins. Co., 543 P.2d 147 (Ariz. Ct. App. 1975) (after loss, rights under policy may be assigned without insurer consent)
- Van Waters & Rogers, Inc. v. Interchange Res., Inc., 484 P.2d 26 (Ariz. Ct. App. 1971) (assignee ‘‘stands in the shoes’’ of assignor and takes claim subject to existing defenses)
- Millard Gutter Co. v. Farm Bureau Prop. & Cas. Ins. Co., 889 N.W.2d 596 (Neb. 2016) (contractor-as-assignee may sue insurer for unpaid repair charges; post-loss assignments upheld)
- Wehr Constructors, Inc. v. Assurance Co. of Am., 384 S.W.3d 680 (Ky. 2012) (majority-rule endorsement that anti-assignment clauses are unenforceable after loss occurs)