Navigate Liability Coverage Through Conditions and Assignment of Benefits

The LHA Liability Trust Fund coverage agreements, like any liability insurance policy, contain several parts:

  1. Declaration Page/Certificate of Coverage
  2. Insuring Agreement
  3. Exclusions
  4. Definitions
  5. Conditions

Typically, the consumer is primarily interested in items 1 through 4, asking questions such as:

  • Who/What is covered and When?
  • What exactly am I getting in return for the payment of my insurance premiums?
  • What is not going to be covered?
  • How are all the terms actually defined in the Agreement?

What Are Insurance Policy Conditions?

The decision to obtain a particular policy or coverage is not usually determined by the Policy Conditions — provisions inserted in the policy that qualify or place limitations on the insurer's promise to pay or perform. Policy conditions identify the general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuation, other insurance, subrogation rights, and cancellation and nonrenewal. If the policy conditions are not met, the insurer may be able to deny a claim.

What Is Assignment of Benefits?

One policy condition that seldom comes into play deals with the assignment of benefits, or the transfer of legal rights under, or interest in, an insurance policy to another party. In most instances, such rights can only be assigned with the insurer’s written consent.

In fact, the “assignment” clause in the Trust Fund agreement is short and sweet:

“Assignment of interest under this Coverage Agreement will not bind us unless our consent is endorsed hereon.”

Signing Paperwork

Assignment of Benefits in Action

To illustrate how this rarely used provision can have significant implications for both the Trust Fund and the Participant, we were recently involved in a situation where the Participant settled a claim under the coverage of its prior liability insurance carrier with a Release that included the following language:

“The parties expressly agree that the undersigned plaintiffs may continue their claim against (hospital) as a nominal defendant only, and that if a judgment is obtained against (hospital) said judgment may only be executed against the Trust Fund up to its available limits of coverage. Furthermore, if a judgment is rendered in the future against (hospital) as a nominal defendant, (hospital) hereby contractually assigns whatever rights or protections it may have under other coverages that may be available to it, so that plaintiffs may bring suit directly under (hospital’s) contractual agreement with the Trust Fund to collect any and all available coverage to satisfy said judgment.”

The Participant entered into the Release agreement and the assignment of benefits without any notice to the Trust Fund, protecting itself by exposing the Trust Fund to — at the very least — significant legal defense costs along with possible indemnity damages. Since consent was not obtained, the Trust Fund had the legal right to deny coverage.

In this particular case, several other coverage issues and unique factual circumstances also existed. All was finally resolved by a pre-trial compromise settlement after protracted and costly pre-trial discovery/litigation.

Addressing Assignment of Benefits in Litigation

The bottom line is this — it is possible that your facility could become involved in litigation where you may receive legal advice to assign the benefits of Trust Fund coverage (or other potential coverages) to another party to be fully released from any further financial exposure.

While this is not illegal or even unethical, it could very well be a breach of contract that nullifies the assignment of benefits. Rest assured, if you do not confer with the Trust Fund beforehand and request consent to assign benefits — and there is no guarantee that consent will be given — then the Trust Fund will definitely explore its right to deny coverage to the fullest.

Questions about Assignment of Benefits? Contact Director of Claims Mike Walsh for more information.

Interested in general liability risk management tips? Our consultants share some of their top findings.

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