September 23, 2021

Powers of attorney: the anti-anti-assignment, by joseph a. creitz, creitz & serebin llp.

The practice of health care providers suing health insurers to reverse denied reimbursements has long been a pain point for the insurance industry. While individual insureds with small-dollar claims are unlikely to sue at all, providers have the resources to fund litigation, and can aggregate numerous claims in order to put together law suits large enough that they are worth pursuing. These larger lawsuits are also worth defending, however, and insurers of ERISA-regulated health plans have, in recent decades, exploited one of the most powerful arrows in their quiver to defeat such suits: the so called “anti-assignment clause”—language in a plan document that prohibits plan participants and beneficiaries from assigning their benefits. This article discusses some of the minutiae and pitfalls of litigation that implicates anti-assignments clauses, and some of the ways that providers can vindicate their rights to payment in the face of such clauses. Courts have long recognized both that ERISA allows for the assignment of welfare benefits such as healthcare reimbursements, and that anti-assignment clauses in ERISA plans are valid and enforceable. 1 Because it would be virtually impossible to state a claim for insured health and welfare benefits under ERISA without alleging the existence of a plan, the ERISA plan document at issue, even if not appended to the complaint, can normally be considered by the court under the incorporation-by-reference doctrine even on a motion to dismiss under Federal Rule of Civil Procedure 12 . 2 Some courts treat insurers’ anti-assignment arguments as contractual affirmative defenses apparent on the face of the pleadings, while others treat it as a question of statutory standing under ERISA. 3 There are avenues to avoid a defendant insurer’s invocation of an anti-assignment defense. For example, if the anti-assignment clause is ambiguous, it may not support dismissal of a healthcare provider assignee’s suit at the Rule 12 stage. 4 Likewise, the provision must appear in the plan document, and cannot be added by way of a summary plan description without an actual amendment to the plan document itself. 5 On the same note, while an anti-assignment clause is only operative to the extent of its clear terms, an assignment itself assigns no more than its own clear terms. 6 And even if there is a clear and unambiguous anti-assignment clause in the plan, the plan’s fiduciaries with appropriate authority can waive the imposition of anti-assignment clauses on a case-by-case basis. 7 Waivers can occur when a plan or its insurers actually pay benefits to healthcare provider assignees, pursuant to their assignments, or when they fail to invoke the anti-assignment provision in the course of the so-called “full and fair review” afforded by a plan’s administrative appeal process. 8 Let us assume that you have digested all of this, that you are representing a health care provider assignee with valid claims for reimbursement, and the plan at issue has an unambiguous anti-assignment clause that the plan has preserved (i.e., not waived). There is at least one remaining avenue that would allow your clients to spearhead litigation on behalf of their patients: the limited durable power of attorney. Using a power of attorney, any competent person can confer on any other person or legal entity the legal right to act in their stead, for all purposes, or a limited purpose or set of purposes. A health care provider with a valid power of attorney from a patient can sue the plan and its insurers in its own name (“Splendid Surgery, in its capacity as attorney-in-fact for Patty Patient, Plaintiff”), or in the name of the patients themselves (“Patty Patient, by and through their attorney-in-fact, Splendid Surgery”). This tactic completely avoids any litigation about the applicability of a plan’s anti-assignment provision, because nobody is suing as an assignee; rather the participant or beneficiary is suing directly, with their attorney-in-fact doing all the heavy lifting. This tactic is not without additional concerns, however. As already discussed, any document creating a power of attorney must strictly comport with applicable state laws. The power of attorney has a defined scope and does not confer upon the provider any rights not clearly specified in the document. 9 Thus a power-of-attorney that does not clearly authorize the attorney-in-fact to pursue ERISA breach of fiduciary duty claims would likely face the same limitations as an assignment that lacked such language. 10 The law respecting the creation of a valid power of attorney varies from state to state, and you must make sure that the form and process you use to establish the power of attorney comports precisely with the requirements of the state in which it is created, as to mandatory terms, provisions, limitations, and even execution requirements which can include mandatory dual witnesses and/or notarization. Finally, in most states an attorney-in-fact is a fiduciary, at least within the scope of their power of attorney. 11 Thus, health care providers seeking to pursue health care reimbursements in litigation against ERISA-regulated plans and insurers, pursuant to a power of attorney, have a heightened duty to act solely in the best interest of their patients and not to prejudice their patients in the pursuit of the claims. While in most cases this would not raise any issues, one can certainly imagine cases in which conflicting interests could implicate a health care provider attorney-in-fact’s fiduciary obligations to its patients. In conclusion, anti-assignment clauses have been used as a cudgel by ERISA plans and their insurers to thwart organized effective litigation to recover reimbursement of claims for medical services. Anti-assignment clauses create a defined and relatively well understood set of opportunities and issues for participants, beneficiaries, health care providers, insurers, and plans. Powers of attorney offer a mechanism for healthcare providers to pursue their patients’ claims for benefits even where a valid anti-assignment clause in a plan document would otherwise thwart the effort.

About the Author

Joseph Creitz is a founding partner of San Francisco’s Creitz & Serebin LLP and has spent the last twenty-six years representing plaintiffs in ERISA litigation involving benefits and breaches of fiduciary duty.

The material in all ABA publications is copyrighted and may be reprinted by permission only. Request reprint permission here.

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Healthcare Financing Anti-assignment Limitations

By: Leslie J. Levinson , Robinson & Cole LLP

This article describes how to structure financing transactions for healthcare providers to overcome anti-assignment and collection limitations on Medicare and Medicaid receivables.

THE UNIFORM COMMERCIAL CODE (U.C.C.) GENERALLY prohibits restrictions on assignment, making it possible for secured lenders to obtain a perfected security interest in these assets. However, other regulations make it difficult for lenders to collect on these receivables. Lawyers, therefore, use a double lockbox mechanism to work around these federal regulations. You should be familiar with this structure and its legal status as defined in recent case law.


Receivables, or “accounts” as defined under the U.C.C., are a valuable and common asset type to pledge to lenders in secured financings. They are simple to perfect, requiring only a general grant of the asset type in a security agreement along with the filing of a U.C.C. financing statement. However, many contracts that give rise to the underlying receivables also contain restrictions that on their face would prevent their assignment to lenders. These contractual anti-assignment clauses would be broad enough to greatly diminish the value of receivables as a form of collateral.

The U.C.C. solves this by rendering most contractual anti-assignment clauses ineffective. Under U.C.C. § 9-406, a term in an agreement between an account debtor (i.e., the party that owes payment to the borrower under the receivable) and the assignor or borrower that “prohibits, restricts, or requires the consent of the account debtor or person obligated on the promissory note to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account” is generally ineffective. A term that would result in a default of a contract if the underlying account is pledged is similarly rendered ineffective. This has allowed for borrowers to freely assign these assets and has made Asset-Based Loan financings more accessible to borrowers with large amounts of receivables.

However, a key aspect to an assignment from a lender’s perspective would be its right to receive payments from the account debtor. The U.C.C. has some lender-friendly provisions here but contains some restrictions relevant to the assignment of Medicare and Medicaid receivables. The anti-assignment override provided by the U.C.C. would not be of use to a lender that is unable to collect on those receivables from an account debtor (i.e., the government) during, say, an exercise of remedies. Fortunately for lenders, U.C.C. § 9-406(a) would require an account debtor to make a payment to an assignee (i.e., a lender) if adequate notice is provided to the account debtor. However, U.C.C. § 9-406(b) limits this right of payment if it is otherwise restricted “under law other than this article.”

In fact, the Medicare and Medicaid anti-assignment provisions, with limited exceptions, prohibit anyone, except the healthcare provider, from receiving payments from federal government healthcare programs. In order to comply with the anti-assignment provisions, a provider cannot assign its right to be paid to any other entity, including its lenders. However, as described below, there are cash-management techniques, which if properly structured, will enable the parties to arrange compliant financing transactions.

Anti-assignment Provisions – The Regulatory Framework

Pursuant to 42 C.F.R. § 424.73, except with respect to certain limited exceptions, “Medicare does not pay amounts that are due a provider to any other person under assignment, or power of attorney, or any other direct payment arrangement.” There are several exceptions to this anti-assignment provision, which apply only under limited circumstances but are generally described as payment to a government agency or entity, payment under assignment established by or in accordance with a court order, and payment to an agent who furnishes billing and collection services to the provider, all subject to certain conditions being met.

There are also specific anti-assignment provisions pertaining to each of Medicare Parts A and B. Part A covers hospital insurance benefits for the aged and disabled, while Part B includes supplementary medical insurance benefits for the aged and disabled. For Part A, 42 U.S.C.S. § 1395g(c) states in relevant part that “No payment which may be made to a provider of services under this title [42 U.S.C.S. § 1395 et seq.] for any service furnished to an individual shall be made to any other person under an assignment or power of attorney . . . ” with certain specified exceptions, such as with respect to an assignment to a government agency. For Part B, 42 U.S.C.S. § 1395u(b)(6) states in relevant part that, with certain listed exceptions, “No payment under this part [42 U.S.C.S. § 1395j et seq.] for a service provided to any individual shall . . . be made to anyone other than such individual or (pursuant to an assignment described in subparagraph (B)(ii) of Paragraph (3)) the physician or other person who provided the service . . . .”

In addition, 42 C.F.R. § 447.10, as outlined in Subsection (a), implements Section 1902(a)(32) of the Social Security Act “which prohibits State payments for Medicaid services to anyone other than a provider or beneficiary, except in specified circumstances.” Pursuant to Subsection (d), “Payment may be made only (1) To the provider; or (2) To the beneficiary if he is a noncash beneficiary eligible to receive the payment under § 447.25,” or as otherwise outlined in other sections of 42 C.F.R. § 447.10 (covering, for example, reassignments and payments to a billing agent, such as a billing service or an accounting firm in specified circumstances).

The Double Lockbox Mechanism

It is crucial for both borrowers and lenders, and their counsel, to understand and comply with all aspects of the anti-assignment provisions. The Medicare Claims Processing Manual (Manual), Chapter 1, Section 30.2.5, provides useful guidance to lenders in dealing with Medicare and Medicaid receivables. Specifically, the Manual states that payments due a provider may be sent to a bank for deposit in such provider’s account if certain conditions are met, including that the account be “in the provider/supplier’s name only and only the provider/supplier may issue any instructions on that account. The bank shall be bound by only the provider/ supplier’s instructions. No other agreement that the provider/ supplier has with a third party shall have any influence on the account. In other words, if a bank is under a standing order from the provider/supplier to transfer funds from the provider/ supplier’s account to the account of a financing entity in the same or another bank and the provider/supplier rescinds that order, the bank honors this rescission notwithstanding the fact that it is a breach of the provider/supplier’s agreement with the financing entity.”

Further, the Manual states that the bank “may provide financing to the provider/supplier, as long as the bank states in writing, in the loan agreement, that it waives its right of offset. Therefore, the bank may have a lending relationship with the provider/supplier and may also be the depository for Medicare receivables.” In accordance with the Manual, despite what a provider and lender may agree to in writing, the lender cannot purchase the provider’s Medicare receivables. Accordingly, in light of the above manual provisions, a common and well-accepted mechanism for providers and lenders to structure payments is to have the provider open multiple deposit accounts, with one in the name of provider that receives only Medicare and Medicaid payments. The provider then enters into a compliant arrangement with the bank that generally vests sole control of the account with the provider while having standing (yet revocable) instructions to sweep the monies from the account into another provider bank account that the lender can access and possibly control. This concept is often referred to as the “double lockbox.” Parties regularly elect to have the sweep occur daily in order to ensure funds are not accumulating in the government payments account.

In setting up a double lockbox, there are various details involved and both providers and lenders need to carefully address those to avoid running afoul of any applicable federal or state restrictions. An example of typical language in loan documents that utilize this double lockbox mechanism is as follows:

If any of the Account Debtors is a Governmental Authority, including, without limitation, Medicare and Medicaid (each a “Governmental Account Debtor”), Borrower shall ensure that all collections of such Accounts shall be paid directly to Accounts # XXXXXX, XXXXXX, XXXXXX, at Lender for Borrower (collectively, the “Governmental Accounts”). All funds deposited into the Governmental Accounts shall be transferred into the Borrower’s Operating Accounts by the close of each business day pursuant to that certain Sweep Account Agreement dated as of the date hereof (as amended, restated, replaced, extended, supplemented or otherwise modified from time to time, the “Sweep Agreement”) by and between Borrower and Lender.

While there has not been a significant amount of litigation concerning the validity of these arrangements, they have typically passed judicial muster. For example, in DFS Secured Healthcare Receivables Tr. v. Caregivers Great Lakes, Inc. , when referring to 42 U.S.C. S. § 1395g(c), the court stated that “On its face, this statute stands only for the proposition that Medicare funds cannot be paid directly by the government to someone other than the provider, but it does not prohibit a third party from receiving Medicare funds if they first flow through the provider.” 1

Further, in Lock Realty Corp. IX v. U.S. Health, LP , the court favorably cited DFS Secured Healthcare Receivables Trust and other cases that support the right to assign Medicare and Medicaid receivables and of third parties to collect on those amounts if they first flow through the provider. 2 These other cases include:

The court in Lock Realty Corp. IX , concludes, “The financing arrangements in this are case are valid and in accord with the federal anti-assignment statute, so Lock Realty cannot enforce its judgment to the extent satisfaction would infringe on a superior interest in the receivables.” The court in Lock Realty Corp. IX also provided further insight on proper structuring by stating:

In other words, the intervenors’ rights in the funds flow through Americare since neither party can receive Medicare funds pursuant to their arraignment without subsequent judicial enforcement of the security agreement. Because the financing arrangements don’t provide a non-provider with the opportunity to submit a false claim, the concerns addressed by the anti-assignment statute aren’t implicated.7 A court-ordered assignment pursuant to 42 C.F.R. § 424.90, directing payment from AdminiStar to Health Care Services or National City Bank doesn’t violate federal law.

As the above illuminates, it is both possible and commonplace for lenders to offer financing to healthcare providers using Medicare and Medicaid receivables as collateral despite the existence of the anti-assignment provisions by using well documented, commercially acceptable, and compliant financing and collateral agreements. However, given the continued evolution in the way healthcare services are provided and financed, counsel for both providers and lenders must continue to stay abreast of all applicable laws, rules, regulations, and other interpretive guidance to ensure continuing compliance with all laws applicable to healthcare financings.

Les Levinson is a partner at Robinson & Cole LLP, New York, and Co-Chair of the firm’s Transactional Health Law practice group. He has represented private and public businesses throughout his more than 30-year career. Although Les maintains an active corporate and business law practice, he concentrates on the transactional, regulatory, and compliance representation of healthcare and life science clients, including home care and hospice companies, physician practices, hospitals, information technology and medical device companies, healthcare equipment providers, and healthcare investors and lenders.

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1 . 384 F.3d 338, 350 (7th Cir. 2004). 2 . 2007 U.S. Dist. LEXIS 14578, at *6–8 (N.D. Ind. Feb. 27, 2007). 3 . 796 F.2d 752, 759 (5th Cir. 1986). 4 . 158 F. Supp. 2d 689, 693 (E.D. Va. 2001). 5 . 242 B.R. 562, 573 (Bankr. D. Mass. 1999). 6 . 69 B.R. 66, 67 (N.D. Ill. 1986). 7 . See, e.g. , Bank of Kansas v. Hutchinson Health Services, Inc., 12 Kan. App. 2d 87, 735 P.2d 256, 259 (Kan. Ct. App. 1987).

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Health Plan’s Anti-Assignment Clause Is Enforceable


July 5, 2018

American Orthopedic & Sports Medicine v. Independence Blue Cross Blue Shield, 2018 WL 2224394 (3rd Cir. 2018)

Available at

A health care provider, attempting to recover payment for services provided to a participant in an ERISA health plan, brought this lawsuit after an unsuccessful claim and appeal via the plan’s internal claims process. The provider was acting under an assignment of benefits from the participant. The trial court dismissed the case, ruling that the provider did not have standing (i.e., was not permitted to bring the lawsuit) because the plan stated that the right to payment for benefits is personal to the participant and is not assignable. (In general, courts permit providers or other entities to pursue claims on behalf of participants so long as the plan terms do not prohibit or restrict assignments.) The provider appealed, arguing that preventing plan participants from allowing providers to try to recover payment for their services is antithetical to ERISA and public policy.

The Third Circuit rejected the provider’s arguments, noting that, while ERISA expressly prohibits assignment of pension benefits, it is silent as to assignment of welfare benefits. This silence could be interpreted to mean that anti-assignment clauses must be enforceable or, alternatively, that Congress intended to preserve participants’ rights to assign benefits—the court found applicable case law inconclusive. Finding the parties’ policy arguments on the pros and cons of anti-assignment clauses similarly unpersuasive, the court looked to other circuits for guidance. According to the court, all circuit courts to address the issue have concluded that ERISA leaves the issue of whether a plan permits or prohibits the assignment of benefits to the “negotiations of the contracting parties,” and that the “terms of an unambiguous private contract must be enforced.” On this basis, the other circuits have enforced anti-assignment clauses in ERISA plans, and this one followed suit. The provider’s alternate argument—that the insurer, by its actions, waived its right to enforce the anti-assignment clause—was also unsuccessful. And the provider’s attempt to rely on the limited power of attorney included in the assignment document was rejected for procedural reasons. Accordingly, the Third Circuit affirmed the trial court’s dismissal.

EBIA Comment:  As the court noted, the enforceability of anti-assignment clauses in ERISA plans is well established in every circuit that has considered similar arguments from providers. The cases generally do not address who are the “contracting parties” in an ERISA plan; as a practical matter, neither individual participants nor providers (whether in-network or out-of-network) have much opportunity to negotiate the terms of the plan document. Providers will have to turn to other mechanisms to attempt recovery; the court appeared to leave open the possibility that providers acting under a power of attorney may be able to pursue claims on behalf of ERISA plan participants. Meanwhile, a trial court in the Third Circuit has promptly applied this ruling to various anti-assignment clauses in pending cases (see, e.g.,  Univ. Spine Ctr. v. Anthem Blue Cross Blue Shield  (D. N.J. 2018) For more information, see EBIA’s  ERISA Compliance  manual at Sections XI.E (“Assignment of Benefits”) and XXXVI.G (“Who Can File ERISA Benefits Litigation?”). See also EBIA’s  Self-Insured Health Plans  manual at Section IX.E (“Recommended Plan Provisions”).

Contributing Editors: EBIA Staff.

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: : Provider Claims Barred By Insurer’s Anti-Assignment Clause

Dr. Komarnisky may prefer that Cigna pay for his services, rather than his patients, but that does not mean Cigna legally injures him by declining to pay out benefits. The law is clear that if a determination to not pay is unreasonable, only a plan participant, beneficiary, fiduciary, or valid assignee is the injured party and may bring an ERISA claim. See Id. at 1289. Because Dr. Komarnisky has not shown that he is any of the above, he has not shown Cigna legally injured him. Even though he is a health-care provider, Dr. Komarnisky is not automatically entitled to bring an ERISA claim. Komarnisky v. CIGNA Healthcare of Arizona (D. Ariz. 2021)

This recent opinion demonstrates once again the recurring problem of anti-assignment clauses. Since only a fiduciary, participant or beneficiary may assert an ERISA claim for benefits, a health care provider must obtain a valid assignment to pursue a claim against an insurer or health plan.

“Health care providers may pursue an ERISA claim provided that a patient has assigned the provider its benefits claim. Spinedex, 770 F.3d at 1289. However, if an ERISA plan contains an anti-assignment clause, then the claim may not be assigned. Id. at 1296 (“Anti-assignment clauses in ERISA plans are valid and enforceable.”). Cigna argues that Dr. Komarnisky lacks standing to bring an ERISA claim because he is not a plan participant, a beneficiary, or fiduciary.”

And the problem is exacerbated by ERISA preemption of any health plan provider claims other than § 502(a)(1)(B) claims. As the district court stated:

“ If a state-law cause of action falls within the scope of § 502(a)(1)(B), “those causes of action are completely preempted, and the only possible cause of action is under § 502(a)(1)(B).” Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 946 (9th Cir. 2009); see also Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004) (“[A]any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.”). This is to say that once an ERISA claim is made, a plaintiff may not bring similar state-law claims seeking benefits for an ERISA plan. Id.”

Note: For a more in-depth look at the policy implications of anti-assignment clauses, see Jordan Davis, Seeking a Second Opinion: A Call for Congressional Evaluation of Anti-assignment Provisions in Employee Health Plans , 89 Fordham L. Rev. 2265 (2021).

Circuit Courts of Appeal – For 11th Circuit, see Griffin v. Coca-Cola Refreshments USA,   No. 18-10417, 2021 WL 712419 (11th Cir. Feb. 24, 2021), well summarized at Your ERISA Watch here ; 9th Circuit, see Ninth Circuit Rules in Favor of Medical Provider in Dispute with Insurer Regarding Anti-Assignment Provisions ; 3rd Circuit, see Health Plans’ Anti-Assignment Clauses Upheld by Third Circuit .

Article III Standing – The issue falls more broadly under the heading of standing to sue:

“ Article III of the Constitution establishes that federal courts may only hear cases or controversies. Lujan v. Defs. of Wildlife, 504 U.S. 555, 559 (1992). To satisfy this constitutional requirement, a plaintiff must have suffered a concrete and particularized injury that is both fairly traceable to the defendant’s conduct and redressable by a favorable decision. Id. at 560-61. “

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Recent Court Decision Highlights Importance of Clear Anti-Assignment Language in Health Plan Documents

anti assignment clause healthcare

A group of out-of-network providers brought the case claiming that benefits for plan participants had been designated to them. They had obtained an assignment of benefits, a designation as authorized representative, and a general power of attorney from the plan participants. UnitedHealth argued that the assignment was invalid because the plan specifically prohibited the assignment of benefits. The providers argued that, due to the following three actions, UnitedHealth essentially waived their anti-assignment provision. The court found that none of the three actions cited below showed evidence of clear intent to waive the anti-assignment clause in the health plan.

Health plans have been fighting similar lawsuits regarding anti-assignment clauses for years, so getting a clear and well-argued win helps provide precedent in future cases. While a case argued in the Southern District of New York isn’t precedent across the nation, with other courts across the country ruling similarly, the logic laid out by the New York court can certainly be cited as persuasive in future cases.

It is important in any case for plan providers to ensure that their plan documents have clear and unambiguous anti-assignment language both in the health plan documents themselves as well as in the shorter summary plan descriptions provided to plan participants to ensure they understand their rights with the health plan. Without this language clearly included in the documentation, the health plan in the New York case would not have been able to make the argument. Any waivers to this anti-assignment policy should be in writing and signed by both the plan provider and the plan participant.

Rulings like this one from the Southern District of New York help guide the team of experienced benefits attorneys at Hall Benefits Law when drafting, editing, and updating plan documentation. We make sure to include language that protects the best interest of our clients, including well located and clearly stated anti-assignment clauses. To learn more, reach out to our team by calling 678-439-6236, or visit the Hall Benefits Law website.

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What Is an Anti-Assignment Clause?

Anti-assignment clauses explained.

anti assignment clause healthcare

How Anti-Assignment Clauses Work

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An anti-assignment clause is a provision in an insurance policy that bars the policyholder from transferring their rights under the policy to another party. The clause prohibits the insured from authorizing someone else to file claims, make changes, or take other actions under the policy.

Many  small businesses  purchase insurance policies that contain an anti-assignment clause, which may affect their ability to conduct certain routine business transactions. For instance, if your property is damaged and you hire a contractor to make repairs, the clause may bar you from allowing the contractor to collect loss payments directly from your insurer. In addition, some restrictions found in anti-assignment clauses may be overridden by state laws. Below, we’ll explore further what an anti-assignment clause is and how it works.

Definition and Example of an Anti-Assignment Clause

An anti-assignment clause is language found in an insurance policy that forbids the policyholder from assigning their rights and interests under the policy to someone else without the insurer’s consent. The clause is usually found in the policy conditions section.

Alternate name : Assignment clause, Non-assignment clause

An example of an anti-assignment clause is wording contained in the standard Insurance Services Office (ISO) business owners policy (BOP) . You can find it in the Common Policy Conditions (Section III) under the heading “Transfer of Your Rights and Duties Under This Policy.” The clause states that your rights and duties under the policy may not be transferred without the insurer’s written consent. However, if you are an individual named on the policy and you die, your rights will be transferred to your legal representative.

An anti-assignment clause may not include the word “assignment” but instead refer to a transfer of rights under the policy.

Anti-assignment clauses prevent policyholders from transferring their rights under the policy to someone else without the insurer’s permission. The clauses are designed to protect insurers from unknown risks. Insurers evaluate insurance applicants carefully before they agree to provide coverage. They consider an applicant’s business experience, loss history, and other factors to gauge their susceptibility to claims. When an insurer issues a policy, the premium reflects the insurer’s assessment of the applicant’s risks. If the policyholder transfers their rights under the policy to another party, the insurer’s risk increases. This is because the insurer hasn’t had an opportunity to evaluate the new party’s risks.

The following example demonstrates how an anti-assignment clause in an insurance policy can affect a business.

Theresa is the owner of Tasty Tidbits, a pastry shop she operates out of a commercial building she owns. She has insured her business for liability and property under a business owners policy. Theresa decides to take a one-year sabbatical from her business and asks her friend Ted to manage Tasty Treats during her absence. Theresa signs a contract assigning her rights under Tasty Tidbits’ BOP to Ted.

If a loss occurs, Ted may have no right to file a claim or collect benefits under the policy on Tasty Treats’ behalf. The assignment is barred by the anti-assignment clause in the BOP.

Effect of State Laws on Anti-Assignment Clauses

Many states have enacted laws via a statute or court ruling that override anti-assignment clauses in insurance policies. These laws may invalidate all or a portion of a policy’s anti-assignment provision. While the laws vary, many bar pre-loss assignments but permit assignments made after a loss has occurred. Assignments made before any losses have occurred are prohibited because they increase the insurer’s risks. Post-loss assignments don’t increase the insurer’s risks, so they generally are permitted.

Some states prohibit any assignment of benefits made without the insurer’s consent, whether the assignment occurred before or after a loss.

Here's an example of how a state law can impact an anti-assignment clause in an insurance policy. Suppose that Theresa (in the previous scenario) has returned from her sabbatical and is again operating her business. Tasty Treats is located in a state that bars pre-loss assignments but allows assignments made after a loss has occurred.

Late one night, a fire breaks out in the pastry shop and a portion of the building is damaged. Theresa files a property damage claim under her BOP and hires Rapid Reconstruction, a construction company, to repair the building. At the contractor’s suggestion, Theresa assigns her rights to receive benefits for the claim under the BOP to Rapid Reconstruction. Because Theresa has assigned her rights after a loss has occurred, the assignment is permitted by law and should be accepted by Theresa’s insurer.

Key Takeaways

Canopy Claims. " Business Owners Coverage Form ," Page 53.

Penn State Law Review. " If You Give a Shop a Claim: The Unsustainable Inequity of Pennsylvania’s Unbridled Post-Loss Assignments ."

Stahl, Davies, Sewell, Chavarria & Friend. " Buyers and Sellers Beware - Assignment of Hurricane Claims May Be Invalid in Texas ."

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Developments in Employee Benefits & Executive Compensation

Will Your Group Health Plan’s Anti-Assignment Clause Defeat Provider Claims?

Many lawsuits against employer group health plans hinge on the enforceability of the plan’s anti-assignment provision. ERISA does not give providers the right to sue for plan benefits. A provider’s lawsuit must be derived from the participant’s right to plan benefits. In other words, the participant must assign his or her right to the provider. Even with such an assignment, a provider will lack standing to bring a lawsuit if the ERISA plan has a valid and enforceable anti-assignment clause. (ERISA itself generally prohibits assignment of retirement plan benefits, but the ERISA prohibition on assignment does not apply to health and welfare plans.)

While courts have generally held that anti-assignment provisions are enforceable, states have begun weighing in on the side of providers in an attempt to keep these lawsuits alive. But can a state law invalidate anti-assignment clauses in plans subject to ERISA and mandate that benefits be assignable to a healthcare provider? The Fifth Circuit, in Dialysis Newco, Inc. v. Community Health Systems Group Health Plan , 938 F.3d 246 (5th Cir. 2019), recently invalidated a Tennessee law that sought to do just that.

Like many health plan claims, the substance of the claim at issue in this case related to the plan’s limitation of out-of-network benefits based on the “Usual and Customary Charges.” However, the Fifth Circuit’s decision did not address the substance of the claim. Instead, the Fifth Circuit examined whether the healthcare provider had a right to seek recovery from the plan directly by standing in the participant’s shoes.

Here, the patient had assigned to the provider his benefits and his right to pursue legal claims arising out of the medical services provided by the provider. However, the plan contained an anti-assignment provision that prohibited such assignments.

The provider first argued that the plan’s anti-assignment provision was ambiguous and should therefore be construed against the plan. The Fifth Circuit disagreed and held that the provision unambiguously prohibited assignment. The court also emphasized the distinction between direct payment authorizations, which were permitted by the plan, and assignments, which were not permitted by the plan.

The provider next argued that a Tennessee law made the plan’s anti-assignment provision unenforceable. (The plan had a Tennessee governing law provision.) The Tennessee law at issue stated, in relevant part: “Notwithstanding any law, rule, or regulation to the contrary, whenever any policy of insurance issued in this state provides for coverage of health care rendered by a provider covered under title 63 [a title of the Tennessee Code that regulates various medical professions], the insured or other persons entitled to benefits under the policy shall be entitled to assign these benefits to the healthcare provider and such rights must be stated clearly in the policy.”

The court held that the Tennessee law was preempted by ERISA because it impacted a central matter of plan administration and interfered with nationally uniform plan administration. A footnote in the court’s opinion stated that none of the parties to the case offered an argument on appeal addressing whether the Tennessee law might be exempt from preemption under the rule in ERISA § 514(b)(2)(A) that exempts state laws regulating insurance from preemption, sometimes called a savings clause. This leaves open the possibility that the Fifth Circuit or another court might find that a state law requiring plans to permit assignments is not preempted with respect to insured plans.

Notably, the district court had found that the plan’s anti-assignment clause was ambiguous and that the participant’s assignment to the provider was valid irrespective of the Tennessee law. While the Fifth Circuit overruled the district court, the validity of anti-assignment clauses is central to determining whether providers can sue group health plans. Sponsors of group health plans should work with legal counsel to evaluate the clarity and scope of plan provisions relating to direct payment authorization and assignment of benefits to make sure the health plan is well-positioned to defend against lawsuits brought by providers.

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