Timothy P. Ososkie*
Abstract
Insurance policies (“policies”) are complicated contracts with a simple purpose: to protect insureds from loss. To fulfill that purpose, insurers must calculate risk with reasonable certainty to collect sufficient premiums to cover their pool of insureds and make a profit. Unsustainable inequity arises, however, when policies succeed in protecting insureds but expose insurers to unaccounted-for risk. Such exposure can occur when insureds “assign,” or transfer, their policy rights to contractors, who can then sue the insurer and inflate the recovery. Insurers, aware of the risks inherent in assignment to unvetted third-parties, routinely draft policies to include anti-assignment clauses (“AACs”). AACs require insureds to obtain insurer consent before assigning policy rights. Most courts, however, simply refuse to enforce AACs “post-loss”—after the loss giving rise to liability has already occurred.
Post-loss disregard for AACs stems from society’s well-intentioned desire to protect unsophisticated and vulnerable insurance consumers. The same concerns prompt courts to construe policy ambiguities against insurers and award insureds the coverage they reasonably expected from their policies. Courts also generally favor allowing parties to freely assign contractual rights unless doing so would increase the other party’s risk. Accordingly, the Pennsylvania Supreme Court follows the majority rule in refusing to enforce AACs post-loss, reasoning that post-loss assignment cannot increase insurer risk because such assignment amounts to the mere transfer of a fixed money claim. Recently, however, the Pennsylvania Superior Court twice enforced AACs post-loss in the policyholder-contractor context. This Comment argues that these Superior Court cases should govern similar future cases, for three reasons.
First, Pennsylvania’s majority-rule case law is inconsistent, offering conflicting rationale for its rulings. Second, Pennsylvania’s majority-rule cases are factually differentiable from the contractor cases and, thus, the former should not govern the latter. Last, post-loss AAC enforcement in the contractor context actually reconciles with the majority rule’s underlying rationale because such assignments do increase insurer risk.
*J.D. Candidate, The Pennsylvania State University, Penn State Law, 2021. Many thanks to my Penn State Law Review colleagues—Anna Fosberg, Erin Clawson Zorn, Lisa Cumming, Mallory Maxwell, and William O’Bryan—who spent much time between 2019–2021 refining this Comment’s form and substance.