Policy Restrictions Relating to the Assignment of Policies and the Legal Interpretation of the Same

Although assignable in the absence of restrictive policy provisions, it is the universal practice to-day of life-insurance companies to include an assignment clause of some kind in their policies. While much variation exists in the wording adopted by the companies, the provision usually reads to the effect that "no assignment of this policy shall be binding upon the company unless in writing and until filed at its home office. The company assumes no responsibility as to the validity of any assignment". In many policies, however, the provision is more elaborate, some companies stipulating that in addition to the filing of the assignment, or a duplicate thereof, the assignment must be approved in writing by certain officers of the company; that the original assignment and due proof of interest must be produced when the policy is presented for payment, and that all assignments shall be subject to any indebtedness to the company at its home office.

Where an assignment has thus been brought to the attention of the company and has been consented to, it is held to constitute a new contract between the company and assignee. The assignee, however, simply obtains the rights of the original insured i.e. takes the position of the assignor and is protected only to the extent that the assignor was protected under the policy. In other words, the assignee takes only what the assignor can assign, and if the policy is void at the time of assignment because of acts of violation on the part of the assignor, the assignee is not in a position to recover.

The assignee's position in this respect has been greatly improved through the general use of the incontestable clause, which, as we have seen, protects the policy against the acts of the insured after the lapse of a stipulated period. The principle, however, is worthy of emphasis in that it applies before the incontestable feature goes into operation, and in so far that it has a most important bearing upon other forms of insurance. In fire insurance ordinary assignments of policies are considered so dangerous, because of the possible invalidity of the contract at the time of assignment, that it is almost the universal practice for mortgagees either to insure their own interest as mortgagee or to require the mortgagor to have a so-called "mortgage clause" indorsed on the policy protecting the premises offered as security for the loan, which provides that "this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy, etc". In some jurisdictions the courts have even held that the indorsement of such a clause does not revive a policy already void at the time the indorsement is made, and for this reason it is the practice of certain large lending institutions a number of life-insurance companies resort to the practice to require fire-insurance companies to consent by special agreement to protect them, as mortgagees, against all acts and neglect of the mortgagor whether occurring prior or subsequent to the issuance of the mortgage clause.

It should also be observed that the assignment provisions of life-insurance policies to which reference was made do not prohibit an assignment without consent, but simply provide that the company need not recognize the assignment until it has received written notice of the same, and that it assumes no responsibility as to its validity. K~or does the provision state that an assignment, not consented to by the company, will invalidate the policy. As is well stated in one case where the court had under consideration an assignment similar to those mentioned above: "The consent of the company to an assignment is not necessary. All that is required is that the assignment be in writing on the policy, and a copy of it furnished to the company within thirty days. This provision is not one which is intended to guard against increased risks, and does not go to, or infuse itself into, the essence of the contract. Its sole purpose is to protect the company against the danger of having to pay the policy twice, by requiring written evidence of any change of beneficiaries to be put in reliable form and promptly furnished to the company. All that could, at the very most, be claimed as the effect of non-compliance with this stipulation is that the company might disregard an attempted assignment and pay the money to the original beneficiary; in other words, such attempted assignment would be merely voidable at the option of the company". Elliott in reviewing the cases affecting notice of assignment to the insurer concludes: "At the most, the failure to give the required notice invalidates an attempted assignment, but does not avoid the policy. A notice given within a reasonable time after an assignment is sufficient, although the insured may have died in the meantime."

When the writing of the assignment is required it is unnecessary to use any particular wording, and the content of the assignment may assume any form that the parties thereto may agree upon, such for example as a special agreement between debtor and creditor as to the final disposition of any balance of the proceeds of the policy after full payment of the actual indebtedness. Where nothing to the contrary is stipulated in the agreement of assignment, the assignee of a policy held as collateral security for a debt of the assignor cannot dispose of the same by sale or surrender to the company for its cash value, without first giving the insured proper notice and a reasonable time for redemption. Moreover, actual delivery of the policy to the assignee is not necessary to make an assignment binding; in fact, the courts have held that the assignee's rights may be fully supported even in cases where neither the policy nor the assignment has been delivered to him.