North Carolina Business Court Holds Anti-Assignment Provisions Enforceable But Applies Narrow Construction

The North Carolina Business Court held that anti-assignment clauses requiring insurer consent for assignment of policy rights and benefits to another party are generally enforceable under North Carolina law. The court narrowly construed several different clauses, holding that some would and others would not bar a limited post-loss assignment of rights and duties pertaining only to one particular claim. Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London, 2021 NCBC 70, 2021 NCBC LEXIS 98, 2021 WL 5099697 (N.C. Super. Ct. Nov. 1, 2021).

The insured owned a plant that suffered a fire loss while it was in the process of being sold. As part of the sale, the insured assigned to the purchaser the right to any post-loss insurance proceeds. The insured obtained consent to the assignment from the primary insurer, but did not seek consent from its excess insurers. After the purchase, a disagreement arose between the purchaser and the excess insurers regarding the amount of covered damages after the excess insurers paid under a reservation of rights a fraction of the amount claimed by the purchaser. The purchaser then sued the excess insurers, alleging both contractual and extra-contractual claims. The insurers moved to dismiss the breach of contract claims on grounds that the purchaser had no rights under the policies due to violation of each excess policy’s anti-assignment clause, and moved to dismiss the extra-contractual claims because the purchaser was a stranger to each contract.

The court first held that anti-assignment clauses are generally enforceable under North Carolina law and should be construed based on the language of the clause. The court further reasoned that payment under an express reservation of rights does not waive an insurer’s right to rely on an anti-assignment clause. The court then considered the applicable clause in each excess policy, and determined that provisions that expressly forbade the assignment of “rights or duties” or of the policy “in whole or in part” without consent were enforceable where the insured had only assigned the right to proceeds from the claim at issue. On the other hand, where other expressly-designated anti-assignment clauses only restricted “transfer of this Policy,” the court held that these clauses only restricted assignment of an entire policy and did not apply to prevent assignment of post-loss proceeds solely for the claim at issue. Finally, in regard to a provision requiring that any favorable terms in any other excess policy in the same layer also be applied to that insurer, the court held that this provision did not require application of the enforceable, broadly worded anti-assignment clauses in other policies in the layer because the policy in question, in pertinent part, defined “more favorable terms and conditions” to mean “additional exclusion verbiage,” and the court held that anti-assignment clauses are not exclusions under North Carolina law. Accordingly, the court concluded that the purchaser had no standing to bring its contractual and extra-contractual claims against the excess insurers whose policies contained the broad anti-assignment clauses and dismissed those insurers from the lawsuit.