Maryland High Court Ruling Clarifies Claim Assignment

A policyholder's ability to assign its rights to insurance proceeds can be an effective tool of risk mitigation. However, insurance policies often incorporate assignment clauses, which require policyholders to obtain their insurer's written consent before assigning their insurance policies to others.

For example, the Insurance Services Office Common Policy Conditions Form, which is often used in commercial liability insurance policies, including package policies, precludes policy assignments under Section F: "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."

Professional liability policies also may prohibit assignment. The ISO standard management protection coverage form (ML 00 01 11 20), Section VII. B. "Assignment," requires the insurer's consent for assignment: "No change in, modification of or assignment of interest under this Policy will be effective without our written consent."

Insurers sometimes attempt to expand the scope of assignment clauses to preclude an insured's assignment of a claim. Claims arise post-loss, of course, and assignment of a claim does not assign the insured's policy to the assignee.

Nevertheless, in the case In re: Featherfall Restoration LLC, the commissioner of the Maryland Insurance Administration, the Circuit Court of Baltimore County and the Appellate Court of Maryland concluded that an assignment clause prohibited the homeowners from assigning their claim for roof damage to a roofing contractor. The commissioner and courts failed to distinguish between assignment of a policy and assignment of a claim, with the Maryland appellate court relying on two lower court cases interpreting different language in life and healthcare policies.

In a July 24 opinion, the Maryland Supreme Court rejected this reasoning, distinguished the language in the purportedly conflicting authority, and reemphasized well-established law that permits assignment of a claim despite the presence of assignment clauses found in personal and commercial liability policies.[1]

The Travelers' insurance policy in Featherfall incorporated the following assignment clause: "Assignment of this policy will not be valid unless we give our written consent."[2]

The insureds assigned their roof claim to the contractor but did not assign their rights under the full policy:

Assignment of Claim: In consideration of work and services being rendered or to be rendered by Featherfall Restoration, LLC pursuant to the separately executed Work Authorization Agreement, as well as any change orders thereafter, I the undersigned Insured ("Assignor") hereby irrevocably transfer, assign, and set over onto Featherfall Restoration, LLC ("Assignee") any and all insurance rights, benefits, proceeds, and any causes of action under applicable insurance policies for the above
mentioned claim.[3]

The commissioner of the Maryland Insurance Administration rejected the clear distinction between assignment of the policy and assignment of a claim, as explained by the Supreme Court of Maryland:

The Commissioner determined that the anti-assignment clause prohibited the assignment of claims as well as the policy itself, which rendered the Assignment void. The Commissioner also determined that anti-assignment clauses are enforceable regardless of whether assignments occur pre-loss or post-loss, primarily relying on two cases that enforced anti-assignment clauses against post-loss assignments of claims.[4]

The Circuit Court of Baltimore County affirmed the commissioner's decision, as did the Appellate Court of Maryland.

Maryland's highest court looked through the court rulings and directly reviewed the commissioner's decision. The court concluded that the insureds assigned only their individual claim and not the policy, and that under well-established law, insureds may assign claims despite the presence of an anti-assignment clause. In its analysis, the court considered "[t]he distinction between a contract and a claim arising under it,"[5] stating that:

Simply put, the Policyholders did not assign their rights to coverage for any loss other than the specific loss for which they hired Featherfall, a point that Travelers conceded at oral argument before this Court. Thus, the Assignment operated only to assign the Policyholders' rights with respect to a specific claim, not the policy itself, and was therefore not prohibited by the policy's anti-assignment clause.[6]

Travelers cited the prior Maryland cases, the 1936 decision in Michaelson v. Sokolove and the 1999 decision in Dwayne Clay MD PC v. Government Employees Insurance Co., to argue that the assignment in Featherfall violated the policy's assignment clause.[7]

However, the Maryland Supreme Court distinguished these prior cases based on the terms of the assignment clauses. Specifically, Michaelson involved a life insurance policy that contained an assignment clause stating that "neither the supplementary contract nor any benefits accruing thereunder shall be transferable or subject to surrender, commutation, anticipation, or encumbrance."[8] Similarly, in Clay the assignment clause stated that "[a]ssignment of interest under this policy will not bind us without our consent."[9]

Therefore, in contrast to the Travelers policy in Featherfall, those assignment clauses "prohibited the assignment of not only the policies but also any 'benefits' or 'interest' thereunder."[10] These broader assignment provisions rendered Michaelson and Clay inapplicable:

Featherfall instead makes the argument that the assignees in Michaelson and Clay could not make — that the Assignment was not prohibited by the plain language of the anti-assignment clause. Thus, neither Michaelson nor Clay supports the notion that here, the anti-assignment clause prohibited the Assignment.[11]

While the court here reached the correct conclusion, Featherfall highlights the importance of specific policy language. Compare the assignment clause in Featherfall — which applied to "assignment of this policy" — to the assignment clause in the ISO form noted above — which applies to "assignment of interest under this Policy." An insurer could argue that the ISO form is broader, alleging that an individual claim is an interest under the policy. Therefore, seemingly minor, but critical, differences in policy language can save or doom a claim assignment.

When binding coverage, policyholders should carefully review the proposed language of the assignment clause to determine whether it applies only to the policy itself or could arguably apply to individual claims. Policyholders can negotiate with their insurer to use language like Travelers' in Featherfall to allow for unilateral claim assignment.

Negotiating with the insurer about the scope of the assignment clause before binding coverage will help clarify both parties' understanding of the clause — and hopefully reduce the chances of disagreement when a claim assignment is made. Unfortunately, however, insurance underwriters and claims personnel can disagree about the interpretation of policy provisions — so even an openly negotiated assignment clause is no guarantee against insurer resistance later.

Also, policyholders with upcoming renewals should carefully review their proposed renewal to ensure that the insurance company has not attempted to expand the scope of the assignment clause from one year to the next.

Finally, Featherfall reinforces the importance of carefully worded claim assignments to avoid insurers' improper reliance on assignment clauses to restrict insureds' post-loss rights. Insureds seeking to assign claims should carefully review any governing assignment clauses and craft the assignment agreement to match their policy language. Attorneys drafting assignments should be mindful of the distinction between claims and policy assignments to preclude this insurer defense.

Republished with permission. This article, "Maryland High Court Ruling Clarifies Claim Assignment," was published by Law360 on September 3, 2025.

[1] In re: Matter of Featherfall, 2025 WL 2080932 at *6-7 (Md. July 24, 2025).

[2] Featherfall at *1.

[3] Id.at *6.

[4] Id.at *2. The authors note that although insurance policies generally incorporate "assignment" provisions, courts and litigants alike often use the term "anti-assignment," thus misinterpreting the purpose of assignment clauses, which permit assignment of insurance policies with the insurer's consent.

[5] Idat *5.

[6] Id.at *7.

[7] Michaelson v. Sokolove, 182 A. 458 (Md. 1936), and Dwayne Clay, M.D., P.C. v. Government Employees Insurance Co., 739 A.2d 5 (Md. 1999).

[8] Michaelson, 182 A. 458, 459.

[9] Clay, 739 A.2d 5, 7.

[10] Featherfall at *7.

[11] Id. at *8.