National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

The scenario presented in the Holloway case is a common one: an insured settles a claim by stipulating to a large judgment and assigning its rights under the insurance policy to the tort victim in exchange for a covenant by the tort victim to not execute directly against the insured. Assuming the insurance policy contains an anti-assignment clause, the question then becomes whether or not the assignment is valid such that the tort victim can pursue a direct action against the insurer.

Oregon’s Court of Appeals surveyed the law of insurance policy anti-assignment clauses and noted that the majority of states hold that anti-assignment clauses only prohibit the assignment of “pre-loss rights or duties.” In other words, the anti-assignment clause prohibits an insured from substituting another insured in its place prior to any loss, but the clause does not prohibit the insured from assigning any rights that may accrue to it following a loss. This makes sense, the Court of Appeals noted, because it is perfectly reasonable that an insurer would want to “protect itself from the unknown risks to which an assignee insured might expose it.” Id. at 648. However, after a loss the parties’ rights are already fixed, so an assignment does not expose the insurer to any greater liability. Because the subject anti-assignment clause did not specify whether it applied to pre-loss rights, post-loss rights or both, the Court of Appeals found an ambiguity which it construed in favor of the insured.

The Oregon Supreme Court found that the Court of Appeals’ ruling stretched logic too far because “[t]he anti-assignment clause … is worded broadly; it contains no exceptions or qualifications.” Id. at 651. It was “unreasonable” to read “an exclusion into a broadly worded anti-assignment clause based upon the clause’s silence regarding its application to a particular situation.” Id. at 652. Because the clause was unambiguous, the attempted assignment was void. Accordingly, the tort victim could not proceed directly against the insurer.

The lesson from Holloway, in our opinion, is that even the most clearly worded policy provisions will be found ambiguous by a sufficiently motivated court. However, in Oregon, the trend is to reject manufactured ambiguities and to interpret insurance policies as they are actually written. Because the Holloway decision granted a degree of certainty to a traditionally uncertain area of the law, we recognize that case as the most significant insurance ruling in Oregon over the past decade. In our opinion, other states’ courts would be wise to follow its course.

The sole question at issue in the parties’ cross-motions for summary judgment was whether the assignment of policy rights was valid in light of the policy’s anti-assignment clause stating: “[a]ssignment of interest under this Policy shall not bind Insurer unless their consent is endorsed hereon.” The district court and the Ninth Circuit both agreed that only three major Oregon Supreme Court cases were relevant to the analysis: Groce v. Fid. Gen. Ins. Co, 252 Or. 296, 448 P.2d 554 (1968); and Holloway v. Republic Indem. Co. of Am., 341 Or. 642, 147 P.3d 329 (2006), which addressed anti-assignment clauses, and Hoffman Const. Co. of Alaska v. Fred S. James & Co., 313 Or. 464, 836 P.2d 703 (1992), which laid out the analytical approach for interpreting insurance contracts.

In Groce, the Oregon Supreme Court held that a virtually identical anti-assignment clause did not prohibit assignment of a cause of action that has accrued under the policy, such as breach of contract. Groce, however, was decided before Hoffman provided the analytical framework for interpreting insurance policies. In Holloway, on the other hand, the Oregon Supreme Court employed the analytical approach set forth in Hoffman to find that an anti-assignment clause that stated: “Your rights or duties under this policy may not be transferred without our written consent,” prevented assignment of both pre- and post-loss rights and duties. Holloway, 341 Or. at 331.

Ultimately, the District Court determined that neither Groce nor Holloway should control, and applied the Hoffman framework to the anti-assignment clause, determining that it was not ambiguous, and applied to bar both pre- and post-loss assignments. The Ninth Circuit reversed, holding that Groce “was not undercut by the Hoffman methodology.” Even if Groce were no longer binding, the Ninth Circuit concluded, the anti-assignment clause at issue was ambiguous under the Hoffman framework because “interest” could plausibly refer to either a purely pre-loss financial stake in the policy, or to both pre- and post-loss rights. The Ninth Circuit observed that the presumption against the drafter applied here “with particular force” in light of the decision in Groce, as Illinois Union “chose a nearly identical anti-assignment clause with constructive knowledge of its meaning.”