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Ninth Circuit Rejects Assignment of Benefits

The U.S. Court of Appeals for the Ninth Circuit recently addressed the requirements for a valid assignment of benefits under an insurance policy, with an emphasis on who has the authority to carry out the assignment.

In MS v. DB Ins. Co., Ltd., a broken fire hydrant caused damage to thirty-one rooms in a California Red Roof Inn. The hotel owner, Pinnacle Hospitality Inc., then sold the hotel a month later to MS and Sons Hospitality LLC. In connection with the sale, the son of Pinnacle Hospitality’s CEO, Chris Choi, sent a letter to DB Insurance Company purporting to assign the insurance benefits to the new hotel owner.

The trial court granted summary judgment to the insurer, and the Ninth Circuit affirmed, finding “Pinnacle did not validly assign its contractual rights to MS under California law.”  In so holding, the Ninth Circuit explained that Chris Choi did not have the authority to assign the insurance rights because he was not “named as a beneficiary on the insurance policy, and he [was] not the owner of the right.” The court emphasized the lack of evidence that Mr. Choi had actual authority and, that the principal “took any action to make Mr. Choi its agent.” Further, no evidence existed showing Pinnacle “actually or negligently held Mr. Choi out as one of its agents with the power to transfer corporate assets.”

Assignment of benefits remains an important issue in the insurance industry.  HKR’s attorneys will continue to monitor this issue and report on any further developments.