Maryland Court Ruling Limits Insurers' Use of Anti-Assignment Clauses in Post-Loss Claims

Maryland's highest court ruled that insurers cannot use anti-assignment clauses to prevent contractors from stepping in on post-loss claims. The ruling in the case involving Featherfall Restoration, LLC clarifies that post-loss claim assignments are valid even when insurance policy language seems to prohibit them. The case originated when Travelers Home and Marine Insurance denied a homeowners' claim for roof damage from a 2019 storm, despite Featherfall Restoration's involvement and the homeowners' transfer of claim rights to the contractor.

The Supreme Court distinguished between insurance policies, which set contractual terms, and claims, which are requests for payment under the policy and can be assigned after a loss. The court confirmed that a post-loss claim is a "chose in action," meaning a transferable property right, and thus exempt from anti-assignment clauses that apply to the policy itself. This decision challenges typical insurer positions that deny recognition of such assignments.

The court also criticized the Maryland Insurance Administration for failing to facilitate communication between the insurer and the contractor assignee. The case was remanded to the agency for further review regarding potential violations of state law by Travelers for refusing to engage with Featherfall Restoration. This highlights regulatory expectations for insurers to recognize and interact with rightful assignees in claims handling.

For property and casualty insurers, this decision signals a need to reconsider the drafting and enforcement of claims provisions, especially anti-assignment clauses. Insurers should adjust internal protocols to accommodate third-party involvement post-loss and ensure compliance with evolving legal interpretations. The ruling does not address the validity of the underlying claim but significantly limits the reach of anti-assignment language in Maryland, with implications for similarly structured jurisdictions.

This ruling provides clarity on the distinction between policy assignment and claim assignment, emphasizing that once a claim exists, policy restrictions on assignment may not apply. Insurance professionals should monitor the evolving regulatory landscape to mitigate compliance risks and enhance claims processing frameworks accordingly.