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Post-Loss Assignments of Claims Under Insurance Policies

In the settlement of lawsuits involving insured claims, it is not uncommon that one condition of the settlement is that the defendant assign his or her claims under all applicable insurance policies to the party that filed suit.

Indeed, it is frequently the case that the defendant, particularly when the defendant is an individual, has a limited ability to pay a judgment and insurance coverage offers the best opportunity for a recovery by the suing party. Usually, such settlements are made without any serious thought being given to whether the defendant’s claim against its insurer is assignable; the assumption being that it is assignable.

However, insurance policies generally have anti-assignment clauses which prohibit the assignment of the policy, or an interest in the policy, without the insurer’s consent. These clauses come into play in determining the validity or enforceability of the assignment of a claim under an insurance policy and should be considered when such an assignment is part of a settlement.

When considering the enforceability of anti-assignment clauses in insurance policies, the courts generally draw a distinction between an assignment made prior to the occurrence of a covered loss (a “pre-loss” assignment) and an assignment made after the occurrence of a covered loss (a “post-loss” assignment).

In analyzing pre-loss assignments, the courts recognize that requiring an insurer to provide coverage to an assignee of its policy prior to the occurrence of a covered loss would place the insurer in the position of covering a party with whom it had not contracted nor been allowed to properly underwrite to assess the risks posed by that potential insured, and, accordingly, determine the appropriate premium to charge for the risks being undertaken or choose to decline coverage.

Post-loss assignments, on the other hand, take place after the insurer’s obligations under its policy have become fixed by the occurrence of a covered loss, thus the risk factors applicable to the assignee are irrelevant with regard to the covered loss in question. For these reasons, the majority of the courts enforce anti-assignment clauses to prohibit or restrict pre-loss assignments, but refuse to enforce anti-assignment clauses to prohibit or restrict post-loss assignments.

Katrina Cases

The Louisiana Supreme Court, which had not previously addressed the enforceability of anti-assignment clauses for post-loss assignments, was recently confronted with this issue in the In re: Katrina Canal Breaches Litigation, litigation involving consolidated cases arising out of Hurricane Katrina. The issue arose as a result of a lawsuit brought by the State of Louisiana as the assignee of claims under numerous insurance policies as part of the “Road Home” Program. The Road Home Program was set up following Hurricanes Katrina and Rita to distribute federal funds to homeowners suffering damage from the hurricanes. In return for receiving a grant of up to $150,000, homeowners were required to execute a Limited Subrogation/Assignment agreement, which provided in pertinent part:

Pursuant to these Limited Subrogation/Assignments, the State of Louisiana brought suit against more than 200 insurance companies to recover funds dispensed under the Road Home Program. The suit was removed to Federal Court under the Class Action Fairness Act and the insurers filed motions to dismiss, arguing that the assignments to the State of Louisiana were invalid under the anti-assignment clauses in the homeowner policies at issue.

On appeal, the United States Fifth Circuit Court of Appeals certified the following question to the Louisiana Supreme Court: “Does an anti-assignment clause in a homeowner’s insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer’s consent, bar an insured’s post-loss assignment of the insured’s claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?”

In answering this question, the Louisiana Supreme Court began by noting that, as a general matter, contractual rights are assignable unless the law, the contract terms or the nature of the contract preclude assignment. Specific to the certified question, Louisiana Civil Code article 2653 provides that a right “cannot be assigned when the contract from which it arises prohibits the assignment of that right.” The Louisiana Supreme Court observed that the language of article 2653 is broad and, on its face, applies to all assignments, including post-loss assignments of insurance claims. The Court, therefore, construed the issue confronting it as whether Louisiana public policy would enforce an anti-assignment clause to preclude post-loss assignments of claims under insurance policies.

In addressing the public policy question, the Louisiana Supreme Court recognized the distinction between pre-loss assignments and post-loss assignments discussed by courts from other states and noted that the prevailing view was that anti-assignment clauses were invalid and/or unenforceable when applied to post-loss assignments. Notwithstanding this weight of authority, the Louisiana Supreme Court stated:

“[W]hile the Louisiana legislature has clearly indicated an intent to allow parties freedom to assign contractual rights, by enacting La. C.C. art. 2653, it has also clearly indicated an intent to allow parties freedom to contractually prohibit assignment of rights. We recognize the vast amount of national jurisprudence distinguishing between pre-loss and post-loss assignments and rejecting restrictions on post-loss assignments, however we find no public policy in Louisiana favoring assignability of claims over freedom of contract.”

Thus, Court refused to invalidate the enforceability of the anti-assignment clauses to the post-loss assignments before it based on public policy, adding that public policy determinations are better suited to the legislature.

Nonetheless, after having recognized the general enforceability of anti-assignment clauses to post-loss assignments, the Court immediately placed limits on when those clauses would be applicable, stating that to be applicable, they “must clearly and unambiguously express that the non-assignment clause applies to post-loss assignments.” The Court refused “to formulate a test consisting of specific terms or words,” which would satisfy this condition and remanded the case to the federal courts to determine whether the individual anti-assignment clauses in the various policies were sufficiently clear and explicit to be enforced with respect to post-loss assignments at issue.

A Broad Application

It should be noted that the Court’s opinion appears to apply broadly to all post-loss assignments irrespective of what specific rights are being assigned, despite the fact that the certified question was narrower and asked only about the applicability of a post-loss assignment where the assignment “transfers contractual obligations, not just the right to money due.”

In a footnote at the beginning of its opinion, the Louisiana Supreme Court observed that in certifying the question to it, the Fifth Circuit “disclaimed any intent” that the Court “confine its reply to the precise form or scope of the legal questions certified.” The footnote indicates that the Court’s opinion was not intended to be limited to only those post-loss assignments involving the assignment of contractual obligations.

Louisiana has departed from the majority view in holding that as a matter of general law, anti-assignment clauses are not inherently void with regard to post-loss assignments. However, it may be that in practical application, the results of individual cases may well be consistent with the majority rule of not enforcing anti-assignment clauses with regard to post-loss assignments because Louisiana courts may be reluctant to find that the anti-assignment clauses are sufficiently “clear and explicit” unless they specifically state that they apply to post-loss assignments, notwithstanding the Louisiana Supreme Court’s unwillingness to “formulate a test consisting of specific terms or words.”

Topics Lawsuits Carriers Profit Loss Claims Louisiana Hurricane Homeowners

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Can You Assign Your Insurance Benefits to Someone Else?

Monashee Frantz / Getty Images

Most business insurance policies contain a so-called anti-assignment clause. This clause prohibits policyholders from transferring any of their rights under the policy to someone else. This means that the insured business cannot cede its right to collect claim payments to another party. However, laws in most states permit policyholders to transfer their rights to another party under certain circumstances.

Anti-Assignment Clause

In the standard ISO policies , the anti-assignment clause is located in a separate form called the Common Policy Conditions. These conditions apply to all coverages that are included in the policy. For instance, if a policy includes business auto , general liability , and commercial property coverages, the anti-assignment clause applies to all three coverages.

The clause is entitled Transfer of Your Rights and Duties Under This Policy. It includes the following provision:

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.

The anti-assignment clause prohibits the  named insured from transferring any of its rights or obligations under the policy to someone else without the insurer's permission. The only exception is if the named insured is an individual (sole proprietor) and he or she dies. An assignment is permitted in this case because a sole proprietorship and the individual owner are one and the same. If the individual dies, the business cannot survive unless it is sold to someone else.

An anti-assignment clause is intended to prevent the insurer from unwittingly assuming risks it never intended to take on. Commercial insurers review business insurance applicants carefully. Before they issue policies, underwriters consider the knowledge and experience of a company's owners and managerial staff. If a business is sold to someone else, the new owners may not be as skilled or attentive as the previous ones. From the insurer's perspective, the new owners are an unknown risk.

Post-Loss Assignments Permitted

The anti-assignment clause doesn't distinguish between assignments made before a loss and those made afterward. Even so, courts in most states have allowed policyholders to assign their rights to another party after a loss has occurred. Pre-loss assignments are still prohibited. Here is an example of a post-loss assignment of insurance benefits.

Victor operates a restaurant called Vital Vittles out of a building he owns. Late one January night two water pipes in the building freeze. The pipes subsequently burst, causing considerable water damage to Victor's building. Victor is forced to close his restaurant until the repairs are completed.

Victor hires a water damage contractor called Rapid Restoration to repair the damage to his building. He tells the contractor that he needs the repairs done quickly as he is anxious to reopen his restaurant. The contractor says that the repairs can be expedited if Victor signs over his rights under the policy to Rapid Restoration. The contractor will then proceed with the repairs and negotiate a claim settlement with Vital Vittles' commercial property insurer. Victor agrees to the assignment and the contractor begins the repair work.

While Vital Vittles' commercial property policy contains an anti-assignment clause, Victor has assigned his rights to Rapid Restoration after a loss has occurred. Thus, in most states, Victor's insurer cannot reject the assignment (assuming post-loss assignments are permitted in Victor's state).

Problems With Assignments of Benefits

In recent years, assignment of benefits (AOB) agreements have been problematic in some states, particularly Florida. Unscrupulous contractors have preyed on unsuspecting homeowners and business owners who have suffered water damage . Some contractors work alone while others operate in cahoots with crooked lawyers. In either event, the contractor convinces the policyholder to assign his or her rights under the policy over to the contractor. The contractor then exaggerates the cost of the repairs and collects the inflated amount from the insurer. The policyholder is left with a large claim on his or her loss history. When the policy expires, the insurer may refuse to renew it.

In the previous example, Victor has assigned his rights under the policy to Rapid Restoration. Suppose that Rapid Restoration completes only half of the repair work on Victor's building. The actual cost is $15,000 but the contractor submits a bill to the insurer for $30,000. Alternatively, the contractor never submits a bill but sues the insurer for $30,000. In either case, the insurer may refuse to pay on the basis that the contractor has committed insurance fraud. Victor cannot intervene because he has signed his rights over to the contractor. If the contractor is unsuccessful in its lawsuit against the insurer, it may demand payment from Victor's company.

Avoiding Problems With AOBs

As a business owner, you can avoid problems associated with AOBs and unscrupulous contractors by taking the following steps:

• Report any loss or accident directly to your insurer (or your agent or broker ). Notify your insurer immediately. Don't allow a contractor to do the notification on your behalf.
• Take photos of the damage.
• Don't allow any contractor to begin work until an insurance adjuster has documented the damage
• Vet contractors thoroughly before hiring them. Make sure they are properly licensed. If your area has suffered a natural disaster, watch out for construction scams.
• Don't sign an AOB unless you have reviewed it carefully. If you don't understand it, ask your agent, insurer, or attorney for assistance.
• If your contractor won't do any work until you've signed an AOB, find another contractor.

AOBs in Health Insurance

Assignment of benefit agreements are common in health insurance. Patients are often asked to agree to such clauses before they receive treatment from a physician, hospital, or another healthcare provider. The assignment of benefits clause transfers a patient's right to collect benefits under his or her health policy to the provider. By signing the document, the patent agrees that payments will be made directly to the provider for the services rendered. The clause states that the patient is ultimately responsible for the charges if the insurer fails to pay.

Once the treatment has been performed, the provider submits the AOB along with a claim to the patient's health insurer. The insurer pays the provider for services rendered to the patient.

Case review: non-assignment clauses and transferring the right to arbitrate by operation of law (Court of Appeal decision)

Global |  Publication |  January 2024

Introduction

Factual background, the high court’s decision, the court of appeal’s decision, key takeaways.

Does a non-assignment clause that prohibits assignments “by any party to any third party, for any reason whatsoever” prevent an assignment (akin to subrogation) to an insurer where such assignment takes effect by operation of law? The Court of Appeal had to consider this question in the recent case of Dassault [2024] EWCA Civ 5 . 

Overturning the High Court’s decision, the Court of Appeal found that the assignment in question did not fall foul of the non-assignment clause as the assignment had not been effected “by” a party because the transfer had occurred by operation of law. That being said, the judgment does not establish a general principle as to the relationship between non-assignment clauses and assignments arising by operation of law; rather the Court of Appeal’s decision was heavily focussed on the interpretation and the wording of the non-assignment clause in the contract.

Dassault Aviation SA (“ Dassault ”) had entered into an English law sale contract with Mitsui Bussan Aerospace Co., Ltd (“ MBA ”) for the sale of two maritime surveillance aircraft (the “ Sale Contract ”). MBA had agreed to onward sell those aircraft to the Japanese Coast Guard pursuant to a Japanese law governed contract (the “ Sub-Sale Contract ”). 

The Sub-Sale Contract provided for liquidated damages in case of delayed delivery of the aircraft to the Japanese Coast Guard. MBA had entered into a Japanese law contract of insurance with its insurer (the “ Insurer ”) to insure the risk of MBA being held liable to the Japanese Coast Guard for such late delivery (the “ Insurance Contract ”). 

The aircraft were delivered late by Dassault to MBA, which led to a consequent late delivery of the aircraft by MBA to the Japanese Coast Guard. MBA was therefore liable to pay liquidated damages to the Japanese Coast Guard under the Sub-Sale Contract. Following the payment of such damages, MBA claimed against the Insurer under the Insurance Contract and the Insurer paid out the insured amount to MBA. 

Under Japanese law (the law of the Insurance Contract), when an insurer pays out an insurance claim it is automatically assigned, by operation of statutory law, the assured’s rights of recovery against third parties in respect of that claim. Having been assigned MBA’s rights, the Insurer accordingly commenced (in its own name) ICC proceedings against Dassault, pursuant to the arbitration agreement found in the Sale Contract. 

Dassault challenged the Tribunal’s jurisdiction to hear the Insurer’s claim. It argued that the assignment to the Insurer was in breach of the non-assignment clause found in the Sale Contract, and that as a result the assignment was null and void. Accordingly, the Insurer was not entitled to rely on the arbitration agreement to bring its claim and the Tribunal lacked substantive jurisdiction. In response, the Insurer contended that the non-assignment clause did not on its proper construction apply to an assignment effected by operation of law. Since the Insurer’s rights arose by operation of law, the Insurer contended that it was not an assignment caught by the non-assignment clause. 

The Tribunal considered the jurisdictional issue as a preliminary issue and the majority (Lord Collins of Mapesbury and Joe Smouha KC) found in the Insurer’s favour (Mr Crookdenden KC dissenting). Dassault challenged the Tribunal’s decision pursuant to section 67 of the Arbitration Act 1996, bringing proceedings before the High Court. 

The High Court found in Dassault’s favour and ruled that the Tribunal had no jurisdiction to hear the Insurer’s claim. Mrs Justice Cockerill (the “ Judge ”) reached this decision by considering the two following issues: 

• Was there a general rule/presumption under English law that transfers “by operation of law” would not fall foul of a prohibition on assignment clause (the “ First Issue ”)?
• If there was no such rule, as a matter of interpretation of the Sale Contract, did the non-assignment clause prohibit the assignment of MBA’s rights to the Insurer, notwithstanding this was an assignment to an insurer akin to subrogation (the “ Second Issue ”)?

On the First Issue, the Judge took the view that the caselaw did not support the proposition that an assignment by “operation of law” would be outside the scope of a non-assignment clause. Instead, the Judge noted that the authorities (mainly old insolvency cases) supported a narrower distinction between transfers which can be said to be willing/voluntary (in the sense of consented to/ within the control of the transferor) and those which were truly unwilling/involuntary. On that basis, the Judge considered that a non-assignment clause could apply to an assignment with the sufficient “taint of voluntariness”. 

Turning to the Second Issue, the Judge noted that an iterative process of interpretation had to be followed that gave due weight to the words and commercial purpose of the non-assignment clause, as well as the factual matrix and commercial common sense. The Judge noted that the wording of the non-assignment clause was intentionally broad with the only limitation imposed being the following words which required the assignment to be: “ by any party to any third party” (emphasis added). That wording, the Judge reasoned, invited one to consider the cause of the assignment rather than the mechanism by which it took place – this, the Judge said, was in line with the approach outlined by the authorities. 

Since MBA had, amongst other things, chosen of its own volition to take out insurance, to do so under a system of non-English law which provided for assignment instead of subrogation, and to make a claim under that insurance, the Judge concluded that MBA had voluntarily caused the assignment, thereby falling provisionally within the scope of the wording of the non-assignment clause. 

The Judge then considered the context/commercial purpose indications. Whilst accepting the logic of the Insurer’s argument – that if an English subrogation is not caught by a non-assignment clause then it is inherently unlikely that the parties intended for the subrogation-equivalent of another legal system to be caught by such clause (not least because the only difference would be the name of the claimant on the arbitration documents) – she ultimately concluded that the context/commercial purpose indications were not weighty enough to displace the position indicated by a consideration of the words. 

The Judge accordingly held that the Tribunal had no jurisdiction to hear the Insurer’s claim, but did so with an “unusual degree of hesitation”. The Insurer appealed the Judge’s findings on both issues.

Overturning the Judge’s decision, the Court of Appeal (consisting of Sir Geoffrey Vos, Master of the Rolls, Lord Justice Coulson, and Lord Justice Phillips) unanimously held that the Tribunal did have jurisdiction to hear the Insurer’s claim. 

On the First Issue, following a close consideration of the authorities, the Court found that “the old insolvency cases d[id] not enunciate a general principle applicable to the interpretation of non-assignment clauses in commercial contracts.” Those cases simply turned on the nature of the insolvency under which the transfer in question took place. 

Turning to the Second Issue, that of interpretation, the Court noted that the words of the non-assignment clause were clear and unambiguous. The key words that had to be considered were the words: “by any party”. The Court of Appeal rejected the causal analysis taken by the High Court and Dassault, and noted that “[t]he correct question was whether the transfer was made by MBA, not whether the transfer was caused as a consequence of certain actions taken by MBA.” 

The Court of Appeal found that the non-assignment clause therefore prevented any assignment which was effected by a party to the sale contract, but not a transfer that was effected by operation of law. As it was common ground between the parties (and had been unanimously decided by the Tribunal) that MBA’s claims against Dassault had been assigned to the Insurer pursuant to Japanese statutory law, that was an assignment by operation of law and not within the scope of the non-assignment clause. 

The Court of Appeal considered that the meaning of the non-assignment clause was clear and unambiguous and that the High Court had erred in thinking that there were two possible meanings to the non-assignment clause. As such, it was not “necessary to consider whether the commercial matrix of fact points in favour of one of two possible meanings of [the clause]”, but the Court did note in obiter that it was “far from clear” that the non-assignment clause was intended to “catch transfers arising from insurance payouts, by whatever law those insurance contracts might be governed”. 

The Court of Appeal accordingly allowed the appeal and reinstated the Tribunal’s award. 

Dassault has sought permission to appeal to the Supreme Court.

The Court of Appeal’s decision should bring some comfort to insurers that an assignment to an insurer by operation of law is unlikely to fall foul of a prohibition on assignment clause. However, the Court did not go so far as to say that there is a general principle to that effect. Parties will therefore be well advised to closely scrutinise any non-assignment clauses and to ensure that they have been drafted in as clear terms as possible (given the Court of Appeal’s emphasis on the interpretation and wording of the individual clause).

Where the parties envisage insurance being taken out, an express carve out, if possible, should be provided in the non-assignment clause in favour of insurers. Furthermore, when insuring under a non-English law and seeking to rely on subrogation or analogous rights, parties should make enquiries as to the mechanism of transfer under that non-English law to ensure it does not fall foul of any non-assignment/transfer clause. 

Ultimately, the Court of Appeal’s rejection of the Judge’s causal analysis (voluntary vs involuntary) and its application to non-assignment clauses in commercial contracts is welcomed as it avoids an approach that would be replete with practical difficulties.  

The Appellant was represented by Zayba Drabu, Cloudesley Long, and Yiannis Charalambous of Norton Rose Fulbright LLP together with Chris Smith KC and Benjamin Joseph of Quadrant Chambers.

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Assignment of Benefits vs Direction to Pay vs Assignment of Policy

Assignment of Benefits vs. Assignment of Policy

Assignment of Benefits forms, also known as AOBs, play a crucial role in the restoration industry’s contractor-client dynamics. These legal documents empower policyholders to transfer their insurance policy benefits to a third party, effectively connecting their restoration contractor directly to their insurance company. By doing so, policyholders can bypass many of the complications and anxieties typically associated with a restoration project, streamlining the process.

According to Josh Ehmke, Co-owner and General Consult at One Claim Solution , there’s a  common misunderstanding between assignment of benefits and assignment of policy. An assignment of policy refers to the transfer of the benefits and rights of an insurance policy from one party (the policyholder) to another party (the assignee).

“An assignment of policy is never going to be valid. In fact, I haven’t come across a state that allows an assignment of an insurance policy without the insurance company’s prior written consent,” Josh said. “The reason it’s not allowed is because it’s against public policy. It increases the insurance risk substantially.”

For example, a policyholder might have a history of filing numerous claims against their insurance provider, suggesting a pattern that they might be well-versed in exploiting certain loopholes and taking advantage of insurance companies. Additionally, there are concerns that they may not adequately maintain or safeguard their property, leading to an increased risk for the insurance company. 

“That is absolutely different from an assignment of benefits, which grants the rights the policyholder had to the payment under the policy to be transferred to the assignee,” Josh said. ”The only prerequisite for an assignment of benefits other than having a covered claim, is that the loss has already occurred. If you get an assignment of benefits before the loss occurs, that’s essentially a transfer of a policy.”

OCS recently encountered a case where the question arose regarding the scope of an assignment of benefits. Specifically, the issue was whether only the rights of the policyholder are transferred, or if the policyholder’s obligations are also transferred alongside the benefits under the assignment.

“By taking the assignment, the contractor doesn’t assume the policyholder’s obligations under that policy,” Josh said. “It’s very important to word your assignment of benefits appropriately to clearly state that you’re not agreeing to assume any of those policy obligations, and to specify which rights you want.”

Direction to Pay vs. Assignment of Benefits

Direction to pay (DTP) is a financial arrangement where the policyholder, who is entitled to receive an insurance claim payment, instructs the insurance company to pay the claim proceeds directly to a third party. This third party could be a vendor, contractor, service provider, or any other entity to whom the policyholder owes a debt or has entered into an agreement.

“The issue with direction to pay is that the carrier doesn’t have to honor it because it’s not enforceable,” Josh said. “It’s very limited in what it can do, whereas an assignment of benefits is much more powerful because it obligates the insurance company legally to pay you.”

According to Josh, DTP’s are rarely used, except in states like Texas and Florida where AOBs are detrimental to contractors or illegal.

“A DTP is better than nothing and allows you to at least show the carrier that the homeowner granted approval to request payment,” Josh said. “But outside of those situations, the direction to pay in my mind is worthless. When you can have an assignment of benefits, there’s no reason to have a direction to pay at all.”

A Final Word

Understanding the differences between an AOB, Assignment of Policy, and DTP is crucial because each term represents distinct legal and financial arrangements that can significantly impact insurance claims and policyholder rights. To learn more about the value of assignment of benefits in helping you navigate the restoration process, be sure to subscribe to our newsletter .

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Welcome! I’m Alisha, and I’m here to champion your success as the Director of Contractor Success at One Claim. With a passion for helping contractors thrive, I bring a wealth of experience in onboarding, customer service, and account management to ensure your journey with us is nothing short of exceptional.

Prior to joining One Claim, I had the privilege of scaling SMB and Enterprise Customer Success teams at fast-growing SaaS startups. With over six years of experience at companies like Mavenlink, Teamwork, and ServiceTitan, I honed my expertise in building high-performing teams and fostering proactive, consultative relationships. This background has equipped me with a deep understanding of the challenges faced by businesses like yours, and I’m dedicated to helping you overcome them.

Hi there, my name is Eric! I am the Chief Technology Officer here at OCS, spearheading our technical strategy. I have a background in computer science, graduating cum laude from BYU-Idaho with a Bachelor’s degree in Computer Information Technology.

Before coming to One Claim, I served as the Director of Engineering at Slingshot Technology, Inc., a company later acquired by WorkWave in 2021. My professional journey has spanned both emerging startups and established corporations, with a steadfast focus on cultivating high-trust, low bureaucracy teams and innovating technology using agile methodologies.

In my free time, you can find me flying drones, enjoying the outdoors, and spending time with my family.

Hello, my name is Cam, I’m the COO of One Claim Solution! I come from a management consulting background (Bain & Company) and hold an MBA from the University of Michigan. I have worked at a wide variety of organizations, from Fortune 500 to small-cap, in an equally wide variety of industries. I have over 15 years of experience in operations and strategic growth, and I have spent much of my career focused on developing high-performing tech-enabled service organizations through early stage and high growth phases.

Outside of work, my wife Brittny and I have four kids, ages 13 to 6. As residents of Mesa, Arizona, we love to ski and explore the national parks of the southwest!

Hello, my name is Dan, and I am the CEO of One Claim Solution. I am super excited by everything we are doing at OCS to be the market leading insurance billing specialist that advocates on behalf of our restoration contractors. 

My professional experiences are predominantly corporate in nature. My career started at General Electric in finance and accounting. Immediately prior to joining OCS, I spent time as an investor at Bondcliff Partners and management consultant with Bain & Company. I also hold an MBA from the Kellogg School of Management at Northwestern University and got my BS in finance and accounting from Northeastern University.

Outside of the office, I enjoy spending time with my wife, two young children, and our family dog, Whiskey. We live in Charleston, SC and take advantage of the beautiful weather by spending as much time as possible outside at the beach or adventuring around town

Co-Founder and General Counsel

Hi, I’m Josh! In 2016, I co-founded One Claim Solution with my partner Jeremy Traasdahl, and I serve as General Counsel of One Claim Solution. Working in the restoration industry, Jeremy and I saw contractors struggling to get paid quickly and fairly and we knew there was a need for change. We founded One Claim Solution to be this change and it’s been my privilege to see our company grow and to advocate for our clients as general counsel.

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Jeremy Traasdahl

Hey, I’m Jeremy! In 2016, I co-founded One Claim Solution with my partner Josh Ehmke. Working in the restoration industry, Josh and I saw contractors struggling to get paid quickly and fairly and we knew there was a need for change. We founded One Claim Solution to be this change and it’s been my privilege to lead our amazing team.

Prior to One Claim Solution, I started my career as an inside sales rep for Avnet, then moved to Pepsico as a district sales manager. Outside of work, I love spending time with my wife and four children, two boys and two girls!

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Non-assignment clauses and the transfer of rights to arbitrate

There is no presumption in English law that transfers of rights by operation of law are exempt from contractual clauses prohibiting the assignment of rights. The important recent case of Dassault Aviation SA v Mitsui Sumitomo Insurance Co Ltd [2022] EWHC 3287 (Comm) established that the relevant distinction is whether the transfer of rights is truly voluntary or involuntary.

A transfer that is given effect by operation of law may be the culmination of a series of purely voluntary acts within the control of the assignor. In such cases, the transfer may have the “ taint of voluntariness ” and may be caught by a non-assignment clause and invalidated. For those reasons, the Commercial Court held that Mitsui Insurance Co (Mitsui) had not acquired the right to bring an arbitration claim under a contract between its insured Mitsui Butsan Aerospace (MBA) and Dassault Aviation (Dassault).

Dassault contracted to manufacture two aircraft for MBA (the Sale Contract) for onward supply by MBA to the Japanese Coast Guard. The Sale Contract was governed by English law and contained an ICC arbitration clause in which London was the seat of arbitration. It also contained confidentiality provisions and a clause prohibiting the assignment or transfer of any right or interest under the contract “ in whole or in part by any Party to any third party, for any reason whatsoever ” without prior written consent (the ‘Non-Assignment Clause’). Two years into the contract, MBA became concerned about delays in manufacture and obtained insurance from Mitsui against its potential liability to the Japanese Coast Guard. The insurance policy was governed by the Japanese Insurance Law (JLA). Article 25 of the JLA provides that, once it has indemnified a loss, an insurer is subrogated “ by operation of law ” to the insured’s recovery claim against any third party. The JLA permits parties to contract out of Article 25, but MBA’s policy with Mitsui in fact contained a clause which had the same effect as Article 25, by providing for the transfer of claims to Mitsui following payment of any loss.

Dassault delivered the aircraft late and Mitsui indemnified MBA under the insurance policy. Mitsui then commenced ICC arbitration proceedings against Dassault on the basis that MBA’s rights under the Sale Contract had been transferred to the insurer. The ICC panel made a partial award that, because the transfer to Mitsui occurred by operation of law, it was not invalidated by the Non-Assignment Clause so that accordingly the panel had jurisdiction to hear the claim. Dassault applied to the English Commercial Court to set aside the award.

The court’s decision

The court’s task was to construe the Non-Assignment Clause and apply it to the disputed transfer of rights to Mitsui. The court accepted that Article 25 of the JLA worked by transferring rights to an insurer by operation of law. By contrast, subrogation under English insurance law requires the claim to be brought in the insured’s name and is not thought to involve any transfer of rights (although there is a lack of certainty about the correct analysis, as the court acknowledged here).

The court began by rejecting Mitsui’s primary argument that there is a rule of English law that transfers of rights ‘by operation of law’ escape contractual prohibitions on assignment. The court found no such broad principle in the case law: the test does not focus on the immediate cause or legal mechanism of the disputed transfer, but rather whether it was truly voluntary or non-voluntary, in the sense of occurring contrary to the will of the transferring party and truly outside their voluntary control. Here, MBA chose to enter into the insurance policy, chose not to contract out of Article 25 of the JLA and chose to claim an indemnity from Mitsui.

The court then construed the Non-Assignment Clause by reference to the words used, the factual matrix and commercial purpose of the Sales Contract, and commercial common sense. The court found that the clear broad words of the clause supported a preliminary conclusion that it applied to the transfer to Mitsui.  The court accepted Mitsui’s argument that the fact that the Non-Assignment Clause might not prohibit a subrogated claim by an English insurer (because it would not involve a transfer of rights), was part of the relevant factual matrix.  However, the court found that there were reasons why contracting parties might treat subrogation differently and that a general prohibition on transfers of contractual rights to insurers would fit with the commercial purpose of the Non-Assignment Clause.  The court concluded that no element of factual matrix/commercial purpose or public policy displaced the initial interpretation based on the words of the Non-Assignment Clause and held that it applied to invalidate the transfer of the right to arbitrate to Mitsui. Accordingly, the court set aside the ICC award on the grounds that the ICC did not have jurisdiction to hear Mitsui’s claim.

This decision will be of obvious interest to insurers and their advisers. Insurers’ rights to pursue recovery claims under their insureds’ contracts with third parties may no longer escape non-assignment clauses simply on the basis that insurers acquire those rights ‘by operation of law’ once they have indemnified the insured. Each case will turn on the specific words of the policy and the non-assignment clause in the underlying contract. The courts may now regard the more important factor as being the insured’s decision to enter into the policy and claim an indemnity, which may colour the transfer to insurers as ‘voluntary’ and potentially bring it within a non-assignment clause. The focus will then shift to the legal basis of the insurers’ right to bring a claim.

For insurers writing policies under systems of law where their title to bring a claim is acquired by means of a transfer of the insured’s rights (as with Japanese law in this case and in contrast to the English law of subrogation), those transfers may be caught by non-assignment clauses and invalidated. Indeed, the judgment leaves open the possibility that English law subrogation claims may one day be caught by non-assignment clauses if the classification problems with subrogation law are resolved in favour of an analysis of transfer of rights. Insurers are therefore now likely to insist that non-assignment clauses in the English law contracts which they insure have express carve-outs permitting transfers of rights to insurers.

The court acknowledged the dispute raised complex issues and that the decision had been reached “ with an unusual degree of hesitation ”. It will be interesting to see how the case law on this important issue develops.

This analysis was co-authored by Jeremy Collins and first published on Lexis®PSL on 21 February 2023 and can be found here (subscription required). 

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UNDERSTANDING THE ANTI-ASSIGNMENT CLAUSE IN CONTRACTS

Contracts, generally, are freely assignable i.e., either party can freely transfer one’s obligations or rights to a third party. This is what an assignment clause signifies. An assignment is a transfer of

INTRODUCTION

Contracts, generally, are freely assignable i.e., either party can freely transfer one’s obligations or rights to a third party. This is what an assignment clause signifies. An assignment is a transfer of rights and liabilities that the third party must then discharge to the other party. But sometimes, some contracts include an Anti-assignment clause to obstruct or limit assignment. They prevent either party to contract to transfer contractual obligations and/or rights to a third party.

The early legal system was against assigning contract rights as it considered them highly personal and intelligible. Fear of litigation, fear of maintenance, and champerty are some of the other reasons that many commentators feel led to the development of a non-assignability clause. However, with the passage of time and the development of technology, the work-load increased mani-fold necessitating the assignment of some rights and liabilities to the third party; now assignment of rights has become a general trend and non-assignment has taken a backseat which especially needs to be drafted to forbid assignment.

An anti-assignment clause also referred to as a non-assignment clause is a boilerplate clause that either bar completely or partially either of the party to the contract from transferring their rights and obligations under the contract to a third party without due permission from the non-assigning party.

FORMS OF ANTI-ASSIGNMENT CLAUSE

A non-assignment clause in a contract can be presented to the oblige in varied forms depending on the nature of the contract and its terms and conditions.

It may take the following forms-

• Assignments of contract rights and liabilities may be completely prohibited, or;
• Assignments may be limited to entities within the same group as the assignor.
• The agreement may prohibit any transfers of the obligation without the approval of the obligor, which should not be unreasonably denied.

IMPORTANCE OF ANTI-ASSIGNMENT CLAUSE

A non-assignment clause limits the obligor’s contractual obligations to the obligee. The courts construe the clause in favor of the non-assigning party i.e., the obliger. Since the oblige afterward assigns its rights, the obliger then needs to also cooperate with the assignee i.e., a third-party or a stranger to the contract for the performance of the contract; therefore, the courts assume that only the party that can complain about the assignment is the non-assigning party.

SCOPE OF ANTI-ASSIGNMENT CLAUSE

Anti-assignment clauses in contracts have become a frequent practice because, without them, contracts are freely assignable. However, there are certain contracts where the assignment is excused by the statutes itself, however, the anti-assignment clause is still drafted into the contract for efficient enforcement. For example, Section 37 of the Indian Contract Act [1] prohibits the practice of “offering to perform” where it is against the lex-terrae. Such contracts could be of IPR where the nature of the contract is personal [2] or could be an employment agreement where an assignment without permission would lead to significant and unfavorable consequences for non-assigning parties. For all other contracts, anti-assignment clauses can be used with ease.

Examples of the use of the Anti-Assignment Clause

• In Franchise Agreement, this clause clearly outlines the extent of the permissibility of the assignment of the intellectual property of the franchise.
• In a Purchase and Sale Agreement, the purchaser may need to assign its rights and obligations to be able to obtain financing more easily. Certainly, the seller would need to keep some control over the financing parts of the transaction through a non-assignment clause to be on the safer side and protect himself against dealing with any strange entity.
• In Asset Acquisition Agreement , a purchaser only obtains those assets and liabilities of a target listed in the agreement. In the case of an asset acquisition. In the case of an asset acquisition, any agreement with an anti-assignment clause will be activated. [3]
• In the Stockholders’ Agreement, this clause will kick in (if included), the moment stockholder tries to transfer, assign, hypothecate, mortgage, or alienate any or all stocks in a corporation. This is the case where there is a complete ban on assignment, however the same can be assigned if however, there are exemptions to non-assignment by operation by law. [4]
• Almost in all Commercial Lease Agreements, there is an anti-assignment clause. The transfer of ownership may be forbidden by an anti-assignment clause, so before selling the business, you must seek permission from your proprietor; however, this permission should not be withheld against the interests of the lease.

However, the list is not exhaustive. There are still a lot of businesses where the anti-assignment clause is used including but not limited to joint-venture agreements, partnership agreements, limited liability company operating agreements, real estate contracts, bills of sale, Assignment, and transaction financing agreements, etc.

ENFORCEABILITY OF ANTI-ASSIGNMENT CLAUSE

This restrictive clause’s effect will be triggered the moment there is any breach of this clause. According to the traditional view, a contract is void if this restrictive clause is violated; however, the modern view holds that a breach of it will only result in a claim for damages; the contract is not ipso-facto void unless expressly stated in the contract. Along with this view, the court will consider the relevant law, the jurisdiction that governs the contract, and the language of the contract to enforce this clause.

MERITS OF ANTI-ASSIGNMENT CLAUSE

A contract with an anti-assignment clause thrives with the following advantages-

• The relationship between the assignor and the obligor is preserved, while the connection between the obligor and the assignee is either limited or eliminated.
• The obligor is safeguarded by this, as they may not want to be in a situation where they must mention a set-off defence against one party and a counterclaim against the other or become involved in a disagreement between the assignor and assignee under the contract of assignment. [5]

DEMERITS OF ANTI-ASSIGNMENT CLAUSE

The anti-Assignment clause also suffers from the following disadvantages-

• In cases where this clause is violated, it is extremely difficult to quantify and measure the damages.
• It can be a lengthy and exasperating process for businesses that are on the brink of bankruptcy, such as start-ups, to finalize the closure until they get the approval of all the commercial entities with whom they had a contract that included a non-assignment clause.
• In the event of a change in ownership, such as a merger or acquisition, a business may feel uneasy about the new owner of its partner company. To have a say in the selection of the other party’s owner, the business may include a clause in the agreement that mandates their approval before the change can occur, allowing them to indirectly manage the situation.

In conclusion, an anti-assignment clause is a provision in a contract that prohibits one party from transferring or assigning their rights or obligations under the contract to a third party without the other party’s consent. This clause is commonly used in contracts to protect the interests of the parties involved and to ensure that the original parties to the contract are the ones who will perform the obligations and receive the benefits. Anti-assignment clauses can be beneficial for both parties in a contract. For the party who is providing goods or services, it ensures that they are dealing with the same party throughout the duration of the contract, which can help to maintain consistency and quality. For the party who is receiving the goods or services, it can assure that they are dealing with a party that has the necessary expertise and resources to fulfill the obligations under the contract. However, there are also potential drawbacks to anti-assignment clauses. They can limit a party’s ability to transfer their rights or obligations under the contract, which can be problematic if the party needs to assign the contract due to unforeseen circumstances. Additionally, anti-assignment clauses can make it more difficult for a party to obtain financing or sell their business, as potential buyers or lenders may be hesitant to take on a contract with such a clause. Overall, the use of anti-assignment clauses in contracts should be carefully considered and tailored to the specific needs of the parties involved. It is important to strike a balance between protecting the interests of the parties and allowing for flexibility in the event of unforeseen circumstances.

Author(s) Name: Avee Singh Dalal (Dr B.R. Ambedkar National Law University, Sonipat)

References:

[1] The Indian Contract Act, 1872, Sec. 37, No. 9, Acts of Parliament, 1872 (India)

[2] Kapilaben v. Ashok Kumar Jayantilal Sheth, (2020) 20 SCC 648

[3] Aaron R Katz, A Guide to Understanding Anti-Assignment Clauses, GT ISRAEL LAW BLOG (Feb. 18, 2023, 5:15 PM), https://www.gtlaw-israelpractice.com/2016/02/04/a-guide-to-understanding-anti-assignment-clauses/ .

[4] The Law of Offices of STIMMEL, STIMMEL & ROESER, https://www.stimmel-law.com/en/articles/assignments-basic-law (last visited Feb. 18, 2023).

[5] Michael Bridge, The nature of assignment and non-assignment clauses, LSE RESEARCH ONLINE (2015), https://eprints.lse.ac.uk/61892/1/The_Nature.pdf .

Anti-Assignment Clause: Everything You Need To Know

An anti-assignment clause prevents either of the parties to a contract from assigning tasks to a third party without the consent of the non-assigning party. 3 min read updated on September 19, 2022

An anti-assignment clause prevents either of the parties to a contract from assigning tasks to a third party without the consent of the non-assigning party.

Anti-assignment clauses are of two types:

One that prohibits the assignment of work or service pursuant to the contract.

One that prohibits the assignment of payment under the contract.

The clause that prohibits the assignment of work or service is a valid clause, completely enforceable and does not bear much importance. However, the clause that prohibits the assignment of payment is a more complex clause that affects crucial buying and selling decisions.

Are Anti-Assignment Clauses That Prohibit Assigning Payments Enforceable?

As an anti-assignment clause prohibits the assignment of payment, it affects business and thus is unenforceable and ineffective under Section 9-406 of the Uniform Commercial Code. The code clearly states that clauses pertaining to "Discharge of Account Debtor, Notification of Assignment, Identification and Proof of Assignment, Restriction on Assignment of Account, Chattel Paper, Payment Intangibles and Promissory Notes" are ineffective and void.

What Should a Factor Do If a Client's Contract Contains an Anti-Assignment Clause?

Most factors prefer not to enter into an agreement with a client whose contract contains any anti-assignment clause to avoid hassle in the future. However, legal experts suggest that factors should ignore the anti-assignment clauses in the contract and proceed with business as usual along with providing a Notice of Assignment to the account debtor.

Even if the factor decides to proceed with the business decision with the said client, he should be aware that the account debtor may not want to engage in commercial activities with the factor, and may even create difficulties in dealings and collection. Though an anti-assignment clause does not deter the factor's decision to enter into a business arrangement with an account debtor or his ability to be paid given the issuance of a Notice of Assignment, it is for him to decide if the efforts are worth the business. However, to ensure a fool-proof commercial and business dealing, the factor can obtain a signed Estoppel Letter from the account debtor to avoid all future disputes.

What Are the Anti-assignment Provisions and Their Effect on Transaction Structures?

Most commercial contracts end with a clause, ”Neither this Agreement nor any of the rights, interests or obligations under the Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either party without the prior written consent of the other party.” This is the anti-assignment clause that ensures the interest of both the parties and that none of the two parties transfer any rights to any other individual with our prior consent of the other main party.

Often, a contract assignment issue plays an important factor in merger and acquisition prospects as buyers want to acquire all customer and vendor contracts. However, if any of the contracts bound by the anti-assignment clause need the approval of the other party, it could lead to additional costs for the buyer, which may affect the decision. The general notion is that most contracts are assignable unless categorically included anti-assignment clauses .

What Is the Typical Anti-assignment Language to Look Out For?

There are numerous ways of including an anti-assignment provision in the contract. However, the AIA Standard Form of Agreement contains the following anti-assignment provision:

• The Party 1 and Party 2, respectively, bind themselves, their partners, successors, assigns, and legal representatives to the other party to this Agreement and to the partners, successors, assigns, and legal representatives of such other party with respect to all covenants of this Agreement. Neither Party 1 nor Party 2 shall assign this Agreement without the written consent of the other.

What Are the Recommendations for Parties Entering Into Construction Contracts?

Usually, when commercial agreements are drawn, parties tend to focus on the key business aspects but pay no heed to anti-assignment provisions. It is thus the main responsibility of a corporate lawyer to study, analyze, and dissect agreements to ensure the best for their clients.

• Check the miscellaneous sections of any agreement to rule out any anti-assignment clause in the contract.
• Read and understand the finer points of the anti-assignment clause in the contract, if any.
• Negotiate changes in the anti-assignment clause prior to signing the contract.

If you need help with an anti-assignment clause, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Content Approved by UpCounsel

• Assignment Law
• Legal Assignment
• Assignment Contract Law
• Assignment of Rights and Obligations Under a Contract
• Consent to Assignment
• What Is the Definition of Assigns
• Assignment Legal Definition
• Assignment Of Contracts
• Assignment of Rights Example
• What is an Assignment and Assumption Agreement

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Insurance Tips – Assignment Vs. Non-Assignment

March 13, 2023

Insurance Tips – Assignment Vs. Non-Assignment Author: Dr. Aisling Whitaker […]

Author: Dr. Aisling Whitaker

In our series of dental reception basics, we will explain some of the most common topics that you need to know. In Canadian insurance, there are two options of how you can bill and collect the patient’s fees.

In either case, you can send the codes to the patient’s insurance digitally or via mail. The difference lies in who the insurance pays out.

Also known as direct billing, assignment means that the insurance will pay the clinic directly. Here the patient will pay the clinic the amount that is not covered by their insurance policy, the co-payment.

For example, Nadia has 80% coverage for her treatment. The total cost is $100. The insurance will pay the clinic $80, so you will collect a $20 co-payment from the patient on the day of treatment.

Non Assignment

Non assignment means that the insurance will pay the patient directly. Here the patient will pay the clinic the full amount and they will receive the re-imbursement from their insurance.

For example, Nadia has 80% coverage for her treatment. The total cost is $100. She pays the clinic $100 and the insurance will re-imburse her $80.

Submitting the claims

When sending an eclaim or paper claim, you must confirm that you have chose the correct setting (assignment or non-assignment) prior to sending. Some insurance policies do not allow for assignment, so always read the resulting report to confirm who the insurance will pay to.

The content of this article is provided for general information purposes only. It is not intended to provide medical or other professional advice, or opinions of any kind and may not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely upon the content of this article, any links provided in this article, or other general information without first seeking appropriate professional advice. Nothing in this article should be understood to create any fiduciary or professional service relationship .

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Are Anti-Assignment Clauses Enforceable?

Written by: Brittainy Boessel

July 22, 2020

8 minute read

Contracts, in general, are freely assignable, which means that either party can transfer its contractual obligations or rights to a third party. But sometimes contracts include anti-assignment clauses to limit or prohibit assignment. Read on to discover the basics of assignment and anti-assignment clauses, what makes them unenforceable, and learn how to negotiate them.

What Is Assignment?

An assignment is like a transfer. If an agreement permits assignment, a party could assign — or transfer — its obligation to another party. The second party — the one to whom the contract was assigned — would then be required to provide the products or services.

Assignments don’t necessarily relieve liability for the party who transfers the agreement. Depending on the contract, the party who assigned its obligations may remain a guarantor of— or responsible for—the performance of the third party assigned the work. In other words, the party to the contract (the assignor) would be responsible for breaches committed by the party to which it assigned its performance (the assignee). To remove itself from the liability of the agreement, the assignor would need to seek a novation , which cancels the first contract and creates a new contract between the party that is the assignee and the original counterparty to the contract.

What is an Anti-Assignment Clause?

Anti-assignment clauses—also sometimes referred to as assignment clauses or non-assignment clauses—can appear in various forms. Essentially, they prevent one or both contracting parties from assigning some or all of their respective contractual obligations or rights to a third party.

Anti-Assignment Language to Look for in a Contract

When reading through your contract, you can typically find a separate paragraph entitled “Assignment,” “Non-assignment,” or “Anti-assignment.” Sometimes you’ll find the assignment language buried within a “Miscellaneous Provisions” section, which contains all the boilerplate language of a contract, such as severability and waiver provisions.

Contracts include two primary types of anti-assignment clauses. The first type categorically precludes all assignments of rights and duties. It usually reads something like this: “Neither Party may assign, delegate, or transfer this agreement or any of its rights or obligations under this agreement.”

The second type prohibits assignments unless the assigning party obtains the prior written consent of the other party. It usually reads something like this: “Neither this agreement nor any right, interest, or obligation herein may be assigned, transferred, or delegated to a third party without the prior written permission of the other party, and whose consent may be withheld for any reason.”

Some clauses may state that a change of control, such as a merger, consolidation, or acquisition, is considered an assignment. Read carefully , because you want to ensure that you won’t be in breach if you transfer the contract to an affiliate.

Additionally, check the termination section of your agreement. Some termination clauses may state that a non-assigning party may terminate the contract in the event of a non-permitted assignment. Or a termination clause may state that the agreement automatically terminates upon such a transfer.

Without an anti-assignment provision, contracts are generally assignable even absent the consent of the counterparty. The Uniform Commercial Code (UCC), a group of laws governing the sale of goods, prefers the free transferability of all types of property, including contracts.

Still, courts normally enforce anti-assignment clauses that are negotiated and agreed upon by both parties, depending on the applicable law, the jurisdiction governing the contract, and the language agreed upon in the contract. Be aware though that courts tend to narrowly interpret anti-assignment clauses. For instance, an anti-assignment clause may prohibit assignment but fail to state that an assignment in violation of the contract will be invalid. In this case, a party may be able to file a suit for breach of contract, but the court may not permit it to invalidate the assignment.

Even without a solid anti-assignment clause, there may still be an opportunity to prevent certain assignments. Courts may not enforce assignments to which the counterparty did not consent, even in the absence of a valid anti-assignment clause, especially if the contract is personal in nature. Some obligations can be performed equally well by a third party, such as a requirement to make payments. But a personal obligation involves a special relationship between parties or requires special levels of expertise, discretion, or reputation. For example, personal service contracts, including employment agreements, are personal enough in nature that they’re not transferable unless the non-transferring party consents.

In general, assignment is not enforceable when:

• The contract prohibits and voids assignment

As discussed above, contract provisions can prohibit and void an assignment.

• The assignment materially changes the contract

If the assignment would significantly impact the performance of the contract — for instance, if it greatly increases the risks or burden imposed on the other party — then a court would likely not enforce the assignment.

• The assignment violates the law

Certain laws prevent assignments. For example, some states legislate that an employee cannot assign its future wages to a third party.

• The assignment violates public policy

If the assignment would harm public policy interests, it will be void. For instance, victims may not assign their personal injury claims to third parties to discourage excessive litigation.

Negotiating Anti-Assignment Clauses

In certain situations, the inclusion of an anti-assignment clause may not be in a party’s best interests. If a party depends on a unique service provider or a specific person to perform, then it must make sure that that service provider or person can’t assign work to an unknown third party without its consent. For instance, if you pay a premium to hire a renowned jazz band to perform at your charity gala, you don’t want a local high school garage band to show up instead. In any situation involving unique services or providers, make sure you have the right to consent prior to any assignment under the agreement.

Another example of the importance of assignability is in mergers and acquisitions. When a company purchases another business, the acquired business’s existing customer base and supplier contracts make it more valuable . Consequently, if a party hopes to eventually sell its business, it would want the right to assign its existing contracts to the buyer. Otherwise, potential buyers may be scared off because of the time and money it will take to transfer the existing agreements. Plus, the existence of anti-assignment clauses may heavily impact the selling price. If it’s possible you may sell your business, ensure that you have the right to assign your contracts and that consent is not solely within the discretion of the counterparty.

If you want the right to assign the contract, but your agreement does not permit assignments, you’ll need to negotiate with your counterparty on this point. If the clause in your agreement prohibits all assignments, try to include a carve out by allowing assignment of your rights and obligations upon the prior written consent of the other party. Add that the counterparty shall not unreasonably withhold or delay consent. You may also want to carve out an exception to the anti-assignment clause by excluding assignments between affiliates or necessitated by change of control transactions, such as mergers or acquisitions.

Courts tend to construe anti-assignment and anti-delegation clauses narrowly. As mentioned, a number of courts have held that an anti-assignment clause does not remove the power of a party to assign the contract and invalidate the contract unless the provision explicitly states that such assignments will be invalid or void. Thus, if you want to make an assignment that violates your agreement, rather than creating an opportunity for a breach of contract case, explicitly state in your contract that such assignments are invalid or void.

If you don’t want the counterparty to be able to assign its rights or obligations, state your preference clearly in your agreement with one of these options.

• Require consent always

Include a clause such as, “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, and any assignment or delegation that violates this provision shall be void.”

• Don’t require consent for affiliates or successors

Include a clause such as, “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, except that no consent is required (a) for assignment to an entity in which the transferring party owns greater than 50 percent of the assets; or (b) in connection with any sale, transfer, or disposition of all or substantially all of its business or assets; provided that no such assignment will receive an assigning party of its obligations under this agreement. Any assignment or delegation that violates this provision shall be void.”

• Require consent to be given reasonably

Include a clause such as, “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, whose consent shall not be unreasonably withheld or delayed. Any assignment or delegation that violates this provision shall be void.”

Note that you will not be able to prevent assignments resulting from court orders or by operation of law, such as those ordered through a bankruptcy hearing.

When you enter a contractual relationship, make sure to clearly determine your rights and obligations, as well as those of the other party. If it may be important for your business to have the right to assign all or parts of the contract, negotiate for the removal of the anti-assignment clause, or request changes to it to provide sufficient flexibility for you to assign.

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Non-assignment clauses, subrogation rights and transfers by operation of law

Dassault Aviation SA -v- Mitsui Sumitomo Insurance Co Ltd [2024] EWCA Civ 5

• Using your device

In a dispute arising out of an insurance claim for delayed delivery of aircraft, the Court of Appeal has held that the non-assignment clause in the sale contract did not apply to a transfer of the buyer’s rights to Japanese insurers by operation of Japanese insurance law. 

In doing so, it disagreed with the Commercial Court that there were two possible meanings of the non-assignment clause. In the Court of Appeal’s view, the wording of the clause was unambiguous and clear and the objective meaning of the language used was that it did not invalidate a transfer of rights by operation of law.

Whilst the parties seemed to agree that English law subrogated rights would not fall foul of the non-assignment clause in this case, the Court of Appeal did not need to decide the issue and declined to do so. Ultimately, in the case of other non-assignment clauses, the answer will likely depend on the particular wording of the clause, read in the context of the other contractual provisions and the wider commercial context.

The background facts

This was a sale contract for military surveillance aircraft that was governed by English law. The buyer was Japanese and entered into a sub-sale on the same day with the Japanese Coast Guard that was governed by Japanese law. 

Article 15 of the sale contract was a non-assignment/transfer clause in the following terms:

“this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party. Notwithstanding the above and subject to a Seller’s prior notice to Buyer, Seller shall have the right to enter into subcontracting arrangements with any third party, for the purpose of the performance of this Contract.”

Other provisions in the sale contract envisaged both parties taking out insurance.

The buyer took out insurance from Japanese insurers to insure against the risk of any liability to the Japanese Coast Guard in the event that the aircraft were delivered late. In fact, the delivery of the aircraft was delayed and the buyer made a claim under the insurance contract. 

The insurers paid out on the claim. It was not disputed that, pursuant to Japanese insurance law, the buyer’s claims against the seller were thereby transferred to the insurers by operation of law. In addition, article 35 of the sale contract provided expressly for the transfer of third party damage claims from the buyer to the insurers.

The seller refused to reimburse the insurers, arguing that the non-assignment clause prohibited any transfer of the buyer’s rights to the insurers without the seller’s prior written consent, which had not been obtained in this instance.

The ICC arbitration

The majority tribunal held that article 15 did not apply to involuntary transfers or assignments or those by operation of law. Here, the transfer to the insurers was by operation of Japanese law. Therefore, the non-assignment clause did not apply and the seller’s consent to the transfer was not necessary. Accordingly, the tribunal had jurisdiction to deal with the insurers’ direct claim against the seller. 

The dissenting arbitrator thought that the transfer of rights was a direct result of the buyer’s voluntary decision to enter into the insurance contract and the transfer was, therefore, voluntary.

The Commercial Court decision

The Court allowed the appeal from this decision, albeit reluctantly. The Court decided that the wording of clause 15 was wide enough to encompass the transfer of rights to insurers by operation of law.

The Court interpreted the authorities as making a distinction between voluntary and involuntary transfers and decided that there was a presumption that such a non-assignment clause would apply if the assignment was voluntary in the sense that it was consented to. 

In this case, in the Court’s opinion, the transfer of rights from the buyer to the insurers could be described as voluntary. Among other things: the buyer could have chosen a policy governed by a different system of law; or it could have excluded the operation of the relevant provision of Japanese insurance law; or it could have chosen not to make a claim.

An issue arose as to whether the non-assignment clause would have applied to subrogation under English law because that does not involve a transfer. Instead, a subrogated insurer that has indemnified its assured in respect of an insured claim can step into the assured’s shoes and pursue a claim in the assured’s name to recover the indemnity payment from a liable third party.

The Court did not need to decide the point so did not determine the issue. However, it did note that academic commentary inclined to the view that rights in subrogation were not caught by a non-assignment clause.

The Court of Appeal decision

The Court of Appeal has allowed the appeal and held that, on its true construction, article 15 did not invalidate the transfer of the buyer’s claims to the insurers. 

The Court of Appeal thought that the authorities relied on by the Commercial Court were not relevant to the issue in dispute and that there was no presumption that a non-assignment clause would apply to a ‘voluntary’ transfer. Rather, it was a question of interpreting the relevant wording of the non-assignment clause in question.

In this case, the words of article 15 were clear. The key words for present purposes were ‘by any Party’ . The arbitrators had unanimously decided that the buyer’s claims against the seller were transferred to the insurers by operation of Japanese insurance law. The correct question was not whether the transfer was the consequence of the voluntary decision of the buyer and the insurers to enter into the insurance contract. The right question was whether the transfer was made by the buyer, not whether the transfer was a consequence of certain actions taken by the buyer. 

The Court of Appeal noted that while the sale contract did not envisage that the buyer would take out insurance against liability for delay under the sub-sale contract, it did envisage that both parties would take out other insurances. This was part of the commercial background to the sale contract.

Given that it was not in issue in this case, the Court of Appeal declined to consider whether English law subrogation would or would not be caught by the non-assignment clause. However, it noted that the parties had appeared to accept that article 15 would not have applied to such a subrogated claim.

It should not be assumed that subrogated rights will never offend against a non-assignment clause or similar exclusive provision. All will depend on the language used in the context of the other contractual provisions and the wider commercial background. In this case, the Court of Appeal thought the wording of the clause was unambiguous, in other cases the Court might conclude otherwise.

Such clauses should be worded carefully, therefore, when they are being incorporated into a contract in order that they achieve the intended result. They should also be considered in detail by any party that is looking to take out insurance and/or to make a claim under that insurance.

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Billing Non-Assigned – Frequently Asked Questions – Part 3

AMARILLO, TX – The DME industry, as we know it today, has been around for about 40 years. It is a young industry. For the first 30 years of its existence, there was little government oversight on the DME industry. This has changed. Over the last 10 years, it feels like the government is making up for lost time.

For the last four decades, suppliers have primarily provided DME on an assigned basis. Medicare paid the suppliers directly and the patients only had to pay their copayments and deductibles. Until the last several years, this worked out for DME suppliers. Until the last several years, reimbursement was high enough and audits were not onerous…..meaning that the “assignment model” worked well for suppliers. Under this “assignment model,” on the relatively rare occasion when a supplier did bill non-assigned and Medicare was asked to reimburse the patient, such reimbursement was usually made. All of this is changing.

It is becoming cost-prohibitive for many suppliers to continue with the “assignment model.” Up to now, DME supplies have shouldered the burden of the increasingly onerous Medicare policies. The suppliers have shielded their patients from the pain inflicted by Medicare policies. Financially, most DME suppliers can no longer do this. The industry is having to shift the burden (of complying with the increasingly onerous Medicare policies) to the DME suppliers’ patients. While this may be unnerving, it is the “new normal.”

What we are now witnessing are (i) DME suppliers are electing to be non-participating and (ii) DME suppliers are billing non-assigned. If a non-participating supplier provides a product on a non-assigned basis, this means that the supplier is not agreeing to accept the Medicare allowable as payment in full, can collect directly from the patient, and can charge more than the Medicare allowable in such cases. The supplier must file the claim with Medicare on behalf of the patient and any Medicare reimbursement will go directly to the patient. The bottom line is that the non-participating supplier (that is not a competitive bid contract supplier taking care of competitive bid patients) can collect up-front from the patient (i.e., bill non-assigned). But as is often the case, the “devil is in the details.”

And so let’s talk about the “details.” Set out below is Part 3 of a 3 Part series that discusses frequently asked questions (“FAQs”) pertaining to billing non-assigned.

ABNs/Medicare Advantage Question – Do ABNs apply to Medicare Advantage plans? Answer – ABNs are specific to Medicare FFS.  Whether a Medicare Advantage plan requires an ABN or something equivalent to an ABN, to hold the patient responsible if the plan denies coverage for the claim, is dependent on the particular plan.

Collection of Capped Rental Items Up Front Question – If we are billing a non-assigned capped rental item, can we collect all 13 months at the time of initial set up? Answer – No.

Medical Assistance Secondary Question – Are we allowed to bill non-assigned for patients with medical assistance secondary? Answer – This is a state by state issue. Some states allow suppliers to bill patients as long as they do not bill the Medicaid program. If the patient is a QMB Medicaid eligible, a supplier must take assignment. Other Medicaid programs may allow a supplier to not take assignment.

Prior Authorization Question – Can we bill non-assigned for items that require prior authorization through Medicare? If so, must we obtain the prior authorization? Would obtaining the prior authorization mean we must accept assignment? Answer – Yes, you can bill non-assigned on an item that requires prior approval.  Obtaining prior approval does not mean you have to take assignment.   A supplier is required to follow Medicare guidelines for coverage regardless of assignment of claim.

Avoiding Discrimination Question – Can I put in a policy across the board that I will only be selling nebulizers, rollators, etc. on a cash basis? Answer – As long as any policy is applied to patients of all payors, it should not be considered to be discriminatory.  However, Medicare enrolled suppliers should not adopt an across the board policy to only sell capped rental items.

Separate “Retail” Company Question – If we were to start a “retail” company with no PTAN or billing of insurance whatsoever, would we be allowed to sell items such as CPAP machines that are “Rx” only items? If so, would we be required to maintain charts or records of patients so we can prove we received an Rx prior to dispensing? Answer – Items that require a prescription prior to dispensing should be labeled as such.  Any item labeled as a prescription device or supply requires a prescription prior to dispensing, regardless of whether it is being sold by a Medicare supplier, “retail” company or online company with no PTAN. State licensing requirements govern who can/cannot sell Rx items. The seller of a prescription-only item should retain the Rx in its records.

Electronic Signature Question – Will Medicare accept an electronic signature from a patient for monthly rentals? Answer – Medicare should accept an electronic signature that meets the requirements of the Uniform Electronic Transactions Act (“UETA”). In the past, CMS has taken the approach that electronic signatures are not sufficient for AOBs and have attempted to require blue ink documents. We believe that as long as the UETA is followed, CMS should be required to accept electronic documentation. However, you should be aware that there is some risk that CMS may still question the use of an electronic signature. This question is being posed to CMS for clarification.

Accepting Lesser Amount From Non-Assigned Patient Question – If we usually charge all insurances (for example) $400/month for E1390, but are unwilling to accept Medicare’s rates and charge a patient $200/month as non-assigned, are we essentially saying that we would take $200/month? Would we be obligated to changing our E1390 price to $200/month?   Answer – Yes, by charging a non-assigned price of $200/month, you are stating that you will accept $200/month as adequate payment.  The price you charge for a non-assigned claim should be your usual charge, and not a reduced amount, as other payers could claim you are charging them an excess amount.

Purchase of Capped Rental Item Question – Can a non-CB supplier have the non-CB patient pay a purchase price for a capped rental item and then bill Medicare as a rental non-assigned? Answer – No, if the supplier sells the equipment as a purchase to the patient, it cannot bill Medicare as a non-assigned capped rental.

Billing After 36th Month Question – How much can a supplier bill for oxygen after the 36 months? Answer – A supplier cannot bill any amount, either to Medicare or the patient, for rental of oxygen equipment beyond the 36th month.  After the 36th month rental, the supplier can only bill for oxygen contents (if applicable), and maintenance and servicing (if performed).

Medicare Remittance Notice Question – When we bill unassigned to Medicare, will we still get the Medicare Remittance Notice or will that only go to the patient? Answer – Both the supplier and the patient will receive a copy of the remittance.  

Subsequent Denial of Non-Assigned Claim Question – If Medicare initially pays and then subsequently denies the non-assigned claim, is the supplier going to get a charge back or will the patient be asked to pay it back? Answer – If the claim is denied in a post-pay audit and the supplier did not have a signed ABN for the reason of the denial, then the supplier will have to refund the amounts collected from patient.

Question – If a supplier sells a product non-assigned, what are the reasons that Medicare can subsequently deny the claim? The supplier (not the beneficiary) will be held financially responsible and will need to refund to the beneficiary the amount the beneficiary paid.   Answer – Applicable reasons for denial requiring an ABN are denials for lack of medical necessity, failure to have a Medicare supplier number, violation of telephone solicitation prohibition, denial of an Advanced Determination of Medicare Coverage (ADMC) request, and non-contracted suppliers for competitive bid items in a CBA.

Medicare and BCBS Patients Treated the Same? Question – If you sell a nebulizer for a $75.00 cash price to a Medicare patient, do you have to do the same with a BCBS patient? Answer – No, but if you are contracted with BCBS you need to follow your contract provisions which may not allow you to sell to a BCBS patient privately.

AOB Question – If you have an AOB on file, would you still need the beneficiary to sign an authorization for every month of a non-assigned capped rental claim? Answer – Yes.  An AOB is when the supplier is accepting assignment.

Billing Secondary Insurance Question – Is the supplier on a non-assigned claim responsible to bill the beneficiary’s secondary insurance? Answer – No, a supplier is not required to bill secondary insurance on a non-assigned claim.

Response to Appeal Question – When we bill non-assigned with the coverage criteria met and the remittance shows a denial on the claim, who is responsible to appeal for payment? Answer – According to CGS, either the patient or the supplier can file the appeal.

ABN Question – If we have a Medicare customer walk in with all the medical documentation and the diagnosis qualifies for an item (walker) but Medicare allowable is low and we do not want to accept assignment, what reason do we state on the ABN for not accepting assignment? Answer – An ABN is not required for a non-assigned claim unless the supplier has a reasonable basis to believe that Medicare will deny the claim.

Notification of Billing Non-Assigned Question – Does a non-participating supplier need to post a notice that it is changing its policy on collecting upfront? Answer – A non-participating supplier can choose to not accept assignment on a claim-by-claim basis. The suppliers will likely continue to accept assignment on some items, and not on others. Therefore, the supplier should notify the patient in advance any time it will not accept assignment for an item.

CPAP Supplies Question – We are hearing from beneficiaries that they can buy CPAPs from internet sites. In this scenario, how will Medicare pay for future supplies? Answer – The patient would need to meet all Medicare requirements for the CPAP unit and the supplier would need all of this documentation to get paid for the supplies. The supplier could enter a NTE segment indicating that the patient owns the CPAP, the claim would likely deny, and would need to be reopened or appealed in order to get paid.

Exiting the Medicare Business Question – If we want to get out of the Medicare business completely, can we continue to service the rental patients we have now and just stop taking new patients? Answer – Yes, you can. However, you are required to continue servicing capped rental patients until the end of the capped rental period, or end of the 5 year period for oxygen patients. Failure to do so can be seen as violation of Medicare requirements. The same response applies whether you are participating or non-participating. You can continue servicing capped rental patients as required, but stop taking any new Medicare patients.

TPA Prohibition Against Billing Non-Assigned Question – I have a contract with a third party administrator to supply DME for its patients but I must accept assignment.  May I still be able to bill non-assigned claims to Medicare for the same equipment? Answer – You will not be discriminating against a Medicare patient so long as you only make that product available to patients for whom you are paid a threshold price, whether that payment amount is collected from the patient on a non-assigned claim, or from the payor (with patient co-pay) for an assigned claim.

Complying With Medicare Guidelines Question – If we choose to provide certain items non-assigned to Medicare beneficiaries with an ABN, is there still an expectation that an attempt to meet Medicare guidelines was made? Answer – The supplier should attempt to make sure Medicare guidelines are met for any product dispensed to a Medicare patient, whether assigned or non-assigned.  If the supplier is aware that Medicare guidelines are not met, then the supplier should have the patient sign an ABN detailing what Medicare requirements are not met as the basis for an expected denial of coverage.

Department of Hospital Question – Can a DME supplier that is a department of a participating hospital become a non-participating provider if the supplier uses the same Tax ID as the hospital?   Answer – The NSC states that if the supplier and the hospital are under the same Tax ID number, and if the hospital is participating, then the supplier must be participating as well.

CB Contract Supplier Question – Can a CB winner deny service(s)?  Rumor has it that some suppliers are not wanting to dispense walkers. Answer – A contracted winner cannot refuse to provide services for which it is contracted. If a complaint is filed with CMS, it will follow-up with the contracted supplier.

Commercial Insurance Prohibition Against Billing Non-Assigned Question – We contract with a lot of commercial insurances that prohibit billing non-assigned and that do not reimburse what we would consider to be acceptable reimbursement. Using an example of procedure code A7036, can we state that we can provide this item for a reimbursement of at or above $36? If a particular insurance company does not meet this reimbursement, we would either bill unassigned or not provide the service? Answer – You will not be discriminating against a Medicare patient so long as you only make that product available to patients for whom you are paid the threshold price set, whether that payment amount is collected from the patient on a non-assigned claim, or from the payor (with patient co-pay) for assigned claims.  In the circumstance that a commercial payor requires that you accept assignment, you can decline to make a particular product available unless the reimbursement meets the threshold amount established for that item (unless your contract requires otherwise).  

Jeffrey S. Baird , JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or [email protected] .

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Non-Assignability of Contracts Without Counterparty Consent

Yvette mishev.

Feb 28, 2018

• Non-assignment provisions are governed by contract law, which generally varies state by state, but the end goal is always the same—to give effect to the parties’ intent.
• A non-assignment provision should clearly and explicitly set forth the contracting parties’ intent and anticipate all possibilities.
• If you value the identity of a vendor as much as you value the vendor’s products, then you need to include a non-assignment provision in your contract.

What Is a Non-Assignment Provision and Why Do You Need It?

Generally speaking, contracts can be freely assigned to third parties.  Non-assignment provisions are designed so that contracts cannot be as freely assigned to third parties; or at least, not without first obtaining the contracting counterparty’s consent. The purpose of a non-assignment provision is to ensure that the identities of the original two contracting parties remain the same throughout the term of the contract.  A basic non-assignment provision reads something like the following:

“This contract cannot be assigned to anyone without the written consent of both parties.”

A non-assignment provision is highly recommended if the service or product contracted for is unique to the party being contracted with and/or if the identity of the service or product provider is valued as much as the service or product being provided. 

For example, if Layla contracts Monique Lhuillier to make a dress for her wedding, a part of the benefit Layla is bargaining for is a dress designed by Monique Lhullier. Consequently, if Monique Lhuillier assigned the design and making of the dress to a third party, Wal-Mart, even if the final product was on par with a Monique Lhullier gown in every way, Layla would nonetheless be deprived of the benefit she bargained for when she contracted Monique Lhullier—having a wedding dress designed by Monique Lhuillier. A non-assignment provision safeguards the contracting parties’ exclusive relationship under the contract; it ensures that Monique Lhullier designs Layla’s dress.

Which Contractual Rights Are Assignable?

There are two types of rights one can assign under a contract—the right to receive performance under the contract, and the right to delegate performance. If a contract contains a basic non-assignment provision like the illustration above, a contracting party may still be able to assign its rights to receive performance under the contract, without acquiring its counterparty’s consent. In some states, a party that has fully performed under a contract can freely assign its right to enforce the other party’s liability despite the existence of a non-assignment provision in the governing contract, because the right to money is not considered personal in nature. E.g. Mail Concepts, Inc. v. Foote & Davies, Inc., 409 S.E.2d 567 (Ga. Ct. App. 1991); Kenneth D. Corwin, Ltd. v. Missouri Medical Service, 684 S.W.2d 598, 600 (Mo. App. 1985).

For example, in some states, if Monique Lhullier designs Layla’s wedding dress but, in turn, Layla does not perform her end of the contract—payment for the dress—Monique Lhullier may be able to assign her right to payment to a third party-despite the contract having a non-assignment provision. And when rights to payment under a contract are assigned, the assignee not only gets a right to the outstanding balance owed but is also entitled to pursue any and all default remedies provided for in the contract.

To further assure that neither contracting party can assign its rights to payment under the contract without first obtaining the counterparty’s consent, the non-assignment provision should explicitly address the issue. Courts will give effect to contract provisions that specifically prohibit the assignment of one's right to receive money due under a contract. See  Raytown Consol. Sch. Dist. No. 2 v. Am. Arbitration Assoc. ,  907 S.W.2d 189, 191 (Mo. Ct. App. 1995).

The following is an example of a non-assignment provision encompassing the right to payment:

“This contract cannot be assigned to anyone without the written consent of both parties. No party to this contract has the power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise.”

See, e.g. In re Kaufman , 37 P.3d 845 (Okla. 2001).

All Non-Assignment Provisions Are Not Created Equal

Like any contract provision, a non-assignment provision must contain clear and unambiguous language. It is important to anticipate the circumstances you wish to avoid and include language to reflect that. A non-assignment provision should be clear about the consequences of the counterparty’s breach.

In some jurisdictions, assignment of rights under a contract containing a non-assignment provision without the counterparty’s consent would qualify as a breach and would entitle the non-breaching party to damages, but all other obligations under the contract would remain intact and enforceable against the non-breaching party and assignee.

For example, the Supreme Court of Connecticut has held that without express contractual language providing otherwise, a provision restricting the assignment of a contract will be construed to be a covenant like any other contractual covenant, so that a breach will render the breaching party liable in damages but will not make the contract a nullity. David Caron Chrysler Motors, LLC v. Goodhall’s, Inc., 43 A.3d 164 (Conn. 2012) (collecting cases from other jurisdictions). Once assigned, the contract is voidable—it has been breached but the burden is on the original counterparty to sue the assignor for damages. The assignee would still be entitled to his assigned rights. Wheelabrator Techs. of N. Am., Inc. v. Fin. Sec. Assur. of Oklahoma, Inc. , No. 88 CIV. 7623 (LMM), 1990 WL 180552, at *3 (S.D.N.Y. Nov. 15, 1990) (New York law).

In other jurisdictions, however, the contract becomes void upon assignment. Physicians Neck & Back Clinics, P.A. v. Allied Ins. Co. , No. A05-1788, 2006 WL 2053142, at *4 (Minn. Ct. App. July 25, 2006). Applied to the dressmaking illustration from before—Layla contracts with Monique Lhullier to make her wedding dress in exchange for money and widgets. Monique Lhullier then assigns the contract to Wal-Mart. Wal-Mart makes the dress and Layla accepts but does not deliver the widgets to Wal-Mart. Wal-Mart then sues Layla for breach of the contract. Wal-Mart could not sue Layla for breach of contract because Monique Lhullier’s assignment to Wal-Mart, without Layla’s consent rendered the contract void.

There are also jurisdictions where the effect of assignment in the face of a non-assignment provision requires a fact sensitive inquiry. Bank of America, N.A. v. Mogila, 330 F.3d 942 (7th Cir. 2003) (“the question whether breach of the promise discharges the obligor’s duty depends on all the circumstances.”) citing to Restatement (Second) of Contracts § 322(2).

To avoid surprises and ensure that assignment without your consent renders the contract void, the contract must explicitly provide that “assignment without consent will result in the assignment (or contract) being null and void.”

“Assignment” Should Be Defined

A non-assignment provision should also make clear whether it applies to change of control transactions where assignment of ownership of the contracting party occurs, either through a merger or a sale. For example, in some jurisdictions, where a non-assignment provision in a contract does not explicitly prohibit a transfer of property rights to a new entity by merger, the general rule is that the court should not presume the parties intended to prohibit the merger. Tenneco Auto. Inc. v. El Paso Corp. ,  2002 WL 453930, at *3–4 (Del. Ch. Mar. 20, 2002) (noting that the Court looks to whether the nonmerging party would suffer “any adverse consequences” as a result of the merger).

Consent Must Be Withheld in Good Faith

But even if the contract has a clear, explicit non-assignment provision requiring a counterparty’s consent does not mean that consent can be freely withheld. In numerous jurisdictions, if the non-assignment provision itself does not account for circumstances under which consent may be withheld, the provision is interpreted in accordance with the implied covenant of good faith and fair dealing which requires the exercise of reasonableness and good faith in deciding whether to consent to a proposed assignment. Dick Broad. Co. of Tennessee v. Oak Ridge FM, Inc.  395 S.W.3d 653, 662 (Tenn. 2013) (collecting cases).

For example, in Alabama, consent cannot be withheld merely because doing so would be financially rewarding. The Alabama Supreme Court held that it was unreasonable to deny consent to an assignment of a lease just so the landlord may charge a higher rent than was originally contracted. The Pantry, Inc. v. Mosley, 126 So. 3d 152 (Ala. 2013). It reasoned that the landlord’s desire for a better bargain than it contracted for had nothing to do with the permissible purposes of the restraint on alienation—to protect the landlord’s interest in the preservation of the property and the performance of the contract.

Non-assignment provisions are governed by contract law, which generally varies state by state, but the end goal is always the same—to give effect to the parties’ intent. Thus, a non-assignment provision should clearly and explicitly set forth the contracting parties’ intent and anticipate all possibilities.

Novack and Macey LLP

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What to Know About Ukraine’s Cross-Border Assault Into Russia

The incursion caught Russia by surprise and signified a shift in tactics for Kyiv after more than two years of war with Russia.

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By Andrew E. Kramer Constant Méheut Kim Barker Anton Troianovski and Cassandra Vinograd

Ukraine pressed ahead with its offensive inside Russian territory on Sunday , pushing toward more villages and towns nearly two weeks into the first significant foreign incursion in Russia since World War II.

But even as the Ukrainian army was advancing in Russia’s western Kursk region, its troops were steadily losing ground on their own territory. The Russian military is now about eight miles from the town of Pokrovsk in eastern Ukraine, according to open-source battlefield maps . The capture of Pokrovsk, a Ukrainian stronghold, would bring Moscow one step closer to its long-held goal of capturing the entire Donetsk region.

That underscored the gamble Ukraine’s army took when it crossed into Russia: throwing its forces into a daring offensive that risked weakening its own positions on the eastern front.

Whether that strategy will prove advantageous remains to be seen, analysts say.

On the political front, the offensive has already had some success: Ukraine’s rapid advance has embarrassed the Kremlin and has altered the narrative of a war in which Kyiv’s forces had been on the back foot for months.

Here’s what to know about Ukraine’s cross-border operation, which President Biden said last week was creating a “real dilemma” for the Russian government.

What happened?

Ukrainian troops and armored vehicles stormed into the Kursk region of western Russia on Aug. 6 , swiftly pushing through Russian defenses and capturing several villages.

Held by Ukraine

as of Aug. 13

Sverdlikovo

Sievierodonetsk

Area controlled

Zaporizhzhia

Sea of Azov

Ukrainian incursion

Source: Institute for the Study of War with American Enterprise Institute’s Critical Threats Project

By Veronica Penney

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