Maximizing Recovery. Minimizing Risk.

Leveraging Opportunity

Case Highlights Insurance Coverage Dispute After “Agent” Assigns Policy to New Owners

On Behalf of | Jul 31, 2023 | Insurance Recovery |

An interesting case recently in the 9th Circuit Court of Appeals, MS & Sons Hosp. v. DB Ins. Co., discussed a common insurance issue that can arise when someone purchases a business from another entity or individual—assigning policy benefits when there is a loss that occurs during the sales transaction.

Water Damage Leads to Insurance Claims

In January of 2017, MS Sons’ owner, Mukesh Patel, entered into an agreement to buy a Red Roof Inn that was owned by Seoul Plaza, LLC. Seoul Plaza had a second company, Pinnacle, that operated the hotel at the time of the sale. James Choi and his son, Christopher, were listed as the officers of Pinnacle.

In April of 2017, there was an issue with a fire hydrant that caused significant damage to many rooms on the property. This happened before MS Sons took the title to the property. Christopher Choi filed a claim with the insurer of the property, DB Insurance Co., to cover the damage caused by the fire hydrant. Extensive renovations would be required, causing portions of the hotel to need to be closed while work was carried out.

In February of 2018, Christopher Choi assigned the insurance policy to Patel via a written statement. The statement called Choi a former owner, and stated all claims and proceeds starting from June 1, 2017, should go to MS Sons.

The insurance company had concerns about whether Choi could make such an assignment, as there was nothing in the assignment itself that defined Choi as an agent of Pinnacle, the company named in the insurance policy. Several attempts were made to get Pinnacle to provide documentation that Choi was an agent, but these were not provided.

Insurer Refuses to Acknowledge Assignment of Insurance Policy

Because of the lack of necessary information, the insurance company notified Choi that Pinnacle was not complying with various provisions in the policy. It stated that it would not cover any more claims made because Choi had breached the policy.

The litigation arose because MS Sons had suffered a significant financial impact because of the water damage. They sued DB Insurance Co. to get the insurers to make good under the assigned policy. The insurance company again contended that the assignment was not valid and filed to have the case dismissed.

Know Who Is an Authorized Agent

In examining this issue, the 9th Circuit had to determine if MS Sons had standing due to the assignment of the insurance policy from Choi to Patel. In looking at the issue, the court found that there was nothing in the assignment paperwork, as well as corporate documents filed with the state, that conveyed on Choi authority as an agent of Pinnacle. Because that could not be established, the assignment was held to be invalid. MS Sons did not have a claim under the policy that Pinnacle had for the hotel.

This case serves as an important reminder to be extra careful in preparing assignments of policy proceeds.

Talk to Us Today About Your Insurance Questions

Should you have questions about an insurance coverage issue, including a possible assignment of policy proceeds, please reach out to us today for more information. We can help your company tackle complex insurance problems, claims, or transactions.