Maryland Does Not Allow Assignment of Property Insurance Proceeds

Restoration contractors should be aware that Maryland does not allow an assignment of insurance claim benefits if the policy has an anti-assignment clause. In March, a Maryland appellate court upheld the insurance commissioner’s finding that the roofing contractor did not have a valid assignment and therefore lacked standing to bring any suit or complaint of bad faith against the insurer: 1

Although Maryland’s early precedent seems to distinguish the effect of such clauses depending upon whether the assignment is pre- or post-loss, it is clear that our modern precedent does not make such a distinction. Both Michaelson and Clay considered a post-loss assignment of insurance claims, and in both cases, the Supreme Court found those assignments invalid because of an anti-assignment clause. Michaelson and Clay are the most recent cases to consider the issue of post-loss assignments of insurance benefits and as such are the precedent we apply in this case. We find no error in the Commissioner’s reliance on these cases to reach her conclusion that the Policy’s anti-assignment clause prohibited the attempted Assignment of Claim.

… we are unpersuaded by Featherfall’s arguments that a purported majority of the states follow the Restatement approach to post-loss assignments. The out-of-state cases Featherfall directs us to offer interesting discussions of the common law in other jurisdictions. They are, however, not the law in Maryland; Michaelson and Clay are. As such, there was no legal error in the Commissioner’s decision that the assignment was invalid under those cases.

…

We conclude that the Commissioner did not err in concluding that the attempted Assignment of Claim between the Insured and Featherfall was void pursuant to the Policy’s anti-assignment clause. In doing so, we clarify that Maryland enforces anti-assignment clauses and that such clauses prohibit assignments regardless of whether they were made before or after a loss under an insurance policy. We further conclude that the Commissioner did not err in finding that, because the purported assignment was void, Featherfall lacked standing to request a hearing before the Commissioner and to make a claim against Travelers for alleged unfair business practices.

Restoration contractors should beware that some assignment of benefits attorneys (AOB attorneys) are sending out wrong and incomplete information on a state-by-state basis about whether a particular assignment contract is valid or enforceable. We strongly suggest that if restoration contractors wish to proceed with an assignment of benefits contract, they seek an opinion from a licensed construction attorney in that particular state to ensure that courts will find the construction agreement and the assignment of insurance benefits contract valid in that state. Pay the attorney to provide an opinion and the contracts to be used. If they are not upheld, you will know where to seek relief.

Thought For The Day

A lawyer with his briefcase can steal more than a hundred men with guns.
—Mario Puzo (from The Godfather)

1 In re Petition of Featherfall Restoration LLC, 261 Md.App. 105, 311 A.3d 437 (Md. App. 2024).