BodyFelt Mount

Anti-Assignment Clause in Contractor’s Insurance Policy Held Enforceable

By: Jamison McCune

The Oregon Court of Appeals recently held, in Clinton Condominiums Owners Association v. Truck Ins. Exch., 282 Or App 484 (Nov. 30, 2016), that a contractor could not assign breach of contact claims against its insurer because of an anti-assignment clause in the contractor’s insurance policy. The Clinton decision illustrates an important limitation on the use of covenant judgments. (See a summary of Oregon covenant judgment practice by Skip Winters in the Bodyfelt Bulletin 2015 – Issue 4 here: Oregon Joins Other States Allowing “Covenant Judgments”). Anti-assignment clauses can prevent an insured from assigning claims against its insurer, especially in cases where there is no excess judgment.

The Clinton plaintiff initially filed negligence and breach of contract claims against a contractor that performed work at its condominium. The contractor tendered the plaintiff’s claims to its insurer, who denied the claims. The plaintiff later settled its claims against the contractor and, as part of the settlement, the contractor assigned any claims it had against its insurer to the plaintiff. The plaintiff then filed suit against the contractor’s insurer alleging breach of the contractor’s policy.

The insurer moved for summary judgment on the grounds that there was an anti-assignment clause in the contractor’s policy. The anti-assignment clause provided that the contractor could not assign any claims against the insurer without the insurer’s consent. In response, the Clinton plaintiff argued the anti-assignment clause was unenforceable under ORS 31.825, which provides “[a] defendant in a tort action against whom a judgment has been rendered may assign any cause of action that defendant has against the defendant’s insurer as a result of the judgment to the plaintiff in whose favor the judgment has been entered.”

The trial court granted summary judgment in the insurer’s favor and the Court of Appeals affirmed holding ORS 31.825 only relates to an insured assigning excess judgment claims against its insurer. ORS 31.825 does not relate to breach of duty to defend and duty to indemnity claims where there is no excess judgment. Therefore, the anti-assignment clause in the contractor’s policy was valid and enforceable by the insurer.

The Clinton decision comes on the heels of Brownstone Homes Condo Ass’n v. Brownstone Forest Heights, LLC, 358 Or 223 (2015). In Brownstone, the Oregon Supreme Court simplified the steps for an insured to enter into a valid covenant judgment. However, the Clinton decision illustrates that such agreements are still not bulletproof.