The assignment of the policy contained in the policy, being a purely personal one, does not run with the subject-matter of insurance in the same way as certain contracts are said to run with the land.
An assignment of the subject-matter, therefore, does not of itself operate as an assignment of the policy so as to substitute the assignee for the original assured and to enable him to enforce it in his own name. Nor does it give the assignee any rights in connection with the policy. In the event, therefore, of a subsequent loss the assignee of the subject-matter cannot, in the absence of some special agreement, call on the assured to enforce the policy for his benefit, or to pay over any moneys which the assured may have already received under it.
A WHAT CONSITITUES A VALID ASSIGNMENT
Before the assignee of the subject-matter can in his own name enforce the contract contained in the policy should be validity assigned to him. To constitute a valid assignment the following conditions must be fulfilled:
a. Where necessary, the consent of the insurers must be obtained; and
b. The assignment of the policy must be contemporaneous with the assignment of the subject-matter.
(a) Consent of the insurers
The policy may contain an express prohibition against its being assigned without notice to the insurers and without obtaining their consent. Unless the condition provides otherwise, the insurers may give or withhold their consent at pleasure. There is, therefore, no reason why they should not, as a condition of the consent, vary the terms of the policy, as, for instance, by requiring the assignee to pay a higher premium. Where, however, the condition merely requires notice, the insurers are bound to indorse the assignment on the policy. An express condition, however, is not necessary, in the case of a fire policy or a liability insurance policy which is not and never was, either at Common Law or in Equity, assignable without such consent on account of its personal nature. It is, therefore, necessary to obtain the consent of the insurers to the assignment, and, if any particular form of indicating their consent is prescribed, it should be obtained in the form.
But, unless there is an express prohibition, a policy of marine insurance may be assigned, and the assignee is entitled to sue in his own name.
Similarly, the consent of the insurers is not necessary in the case of an assignment of a life policy, and the assignee is entitled to sue in his own name.
Where the consent of the insurers is required, an assignment of the policy without their consent renders the policy voidable only, and the policy, therefore, remains in force until they elect to avoid it.
The assignee, on obtaining their consent at any time after the assignment, is apparently entitled to enforce the policy. By giving their consent, the insurers are stopped from denying the validity of the policy. They may further be precluded by their subsequent conduct, or by their dealings with the assignee, from relying on the fact that their consent was not given in the proper form, or even on the fact that it was not given at all.
In practice, insurance policies except in case of marine insurance usually contain an express condition regulating their assignment. The condition may provide that, on an assignment of the subject-matter otherwise than by will or operation of law, the policy is to cease to be in force unless, by the consent of the insurers, to be signified by indrosement on the policy, it is continued to the assignee.
Sometimes the condition dispenses with the consent of the insurers. Thus, under a condition to the effect that the policy is to cease to be in force unless notice of the assignment is given and unless the assignment is indorsed on the policy, the insurers have no power to withhold their consent, but must indorse the policy, if so required, on receiving notice.
Similarly, the condition may provide that, on a change in a firm, the policy is to continue in force and to enure for the benefit of the new firm.
(b) Contemporaneity of assignment of the policy and the subject-matter
To constitute a valid assignment of the policy, the assignment must accompany a transfer of interest in the subject-matter. The assignment of the policy can only be made, therefore, to the assignee of the subject-matter and at the same time as the assignment of the subject-matter or in pursuance of a contemporaneous agreement.
Since it is a transfer of the insurance as a whole, a transfer to any other person than such assignee would be a transfer to a person without an insurable interest and the policy would, therefore, become void.
Moreover, as the original assured retai and the assignee does not acquire the insurable interest until the actual transfer of the subject-matter, the policy, if not assigned until after the assignment of the subject-matter, has already ceased to be in force, whilst if assigned before the assignment of the subject-matter, it ceases to be in force on coming to the hands of a person who, as yet, has no insurable interest in the subject-matter.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 51 provides that:
‘Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative.’
B THE FORM OF THE ASSIGNMENT
No particular form of assignment appears to be necessary to complete the rights of the assignee as against the insurers, since the validity of the assignment depends, not on the form in which it is made, but on the consent of the insurers.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 50(3), states:
‘A marine policy may be assigned by indorsement thereon or in other customary manner.’
The assignment of the policy cannot be regarded as an assignment of an ordinary chose in action since it depends for its validity both on assignee’s possession of an interest in the subject-matter, and on the giving of their consent bt the insurers, and therefore, the rules governing the validity of an assignment of achose in action, whether legal, or equitable are inapplicable.
The assignment of the policy does not of itself confer any rights on the assignee as against the insurers, even though the possesses or aquires an interest in the subject-matter of insurance. By giving their consent, they render themselves liable to the assignee whether the policy has been duly assigned by a formal assignment, or whether it has merely been transferred to him by manual delivery in pursuance of an understanding between the original assured and himself.
Since, therefore, before giving their consent they may require such evidence of the assignee’s title as they think desirable, they cannot, it is apprehended, resist liability on the ground of any informality in the assignment.
C. ASSIGNMENT BY OPERATION OF LAW
On the death, or bankruptcy, of the assured, the policy developes on his personal representatives or trustee in bankruptcy, as being part of his estate and not merely because of its connection with the subject-matter, In the case of a subsequent loss, the trustee in bankruptcy is entitled to sue on the policy in his official name. No specific assignment of the policy appears to be necessary though a condition may require the policy to be indorsed.
Whilst the policy is in the hands of the personal representatives or trustee in bankruptcy, it may be enforced for the benefit of the estate not only in respect of claims which have arisen before the death or bankruptcy, and which have developed upon them as claims, but also in respect of claims arising afterwards.
Where, in the administration of the estate, they transfer the subject-matter of insurance to a beneficiary or purchaser, they may assign the policy also, this being equally with the original devolution an assignment by operation of law as being consequent on and rendered necessary by the death or bankruptcy of the assured, and the beneficiary thereupon becomes entitled to the benefit of the policy.
D. THE EFFECT OF THE ASSIGNMENT OF THE POLICY
On the completion of the assignment, the rights and duties of the original assured devolve on the assignee, who becomes, to all intents and purposes, the assured under the policy which he may accordingly enforce in his own name. He is, therefore, entitled, in the event of a loss subsequently taking place, to retain for his own benefit the whole amount received from the insurers under the policy, and cannot be compelled, where the amount received happens to exceed his own loss, to hand over surplus to the original assured, unless there is an agreement to that effect.
Nor will any act done by the original assured after the assignment affect the validity of the policy.
The assignee becomes liable to fulfil the conditions of the policy, and his failure to do so avoids the policy or prevents him from recovering to the nature of the condition.
Further, however, he takes the policy subject to equities, since the assignment is the assignment of an existing contract, and must therefore bear the consequences of any act or omission of the original assured before the assignment.2 Thus, if during the negotiations, the original assured was guilty of fraud or non-disclosure, the policy, being voidable ab initio, may be avoided by the insurers notwithstanding assignment subsequently to an innocent assignee; and the fact that the insurers consented to the assignment does not in itself preclude them from electing afterwards to avoid the policy.
The form of their consent and the circumstances in which it was given, however, amount to a new contract, and, therefore, place the assignee in a better position than the original assured.
Similarly, where the insured property has been seized and condemned as enemy property and lawful prize, an assignee of a policy effected by an enemy alien in respect of it has no right under it, for it could not have been enforced by the assured.