Farmers Insurance v. Udall (CA1 6/12/18)

The issue of how homeowners insurers pay — or don’t pay — water-damage claims has been out there awhile. Having spawned a cottage industry of “restoration” contractors, carriers treat them as they do their many similar children (including insurance-defense lawyers) — providing just enough sustenance to keep them alive but maintain their dependence. This case combined four such claims; for clarity we’ll treat it in the singular.

Farmers used a contractor called EcoDry to remediate its insured’s damage. EcoDry’s work order made clear that it worked for the insured but also contained an assignment to it of the insured’s rights, though Farmer’s policy had an anti-assignment clause. Farmers, predictably, declined to pay EcoDry the full amount of its invoice so it sued Farmers under the insurance policy. Farmers moved to dismiss, arguing that EcoDry had no valid assignment and therefore no rights against it. The trial court denied the motion. Farmers filed a special action.

The Court of Appeals accepts jurisdiction but denies relief.

A policy can’t be assigned; you can’t change the insurer’s risk without its consent. But assignment of a claim — i.e., accrued policy rights after a loss — is valid. Farmers argued that assignability isn’t triggered when the amount of the claim is still in dispute. The court disagrees that this affects Farmers’ risk or obligations. The policy requires it to pay the reasonable costs of repair regardless of who pursues that claim.

Whether EcoDry’s broad assignment would allow it to make a bad-faith claim the court leaves for another day since EcoDry — at least in its Amended Complaint — was careful to avoid the issue.

(Opinion: Farmers v. Udall)