In recent years, general contractors, roofers, and mitigation companies have increasingly used Assignment of Benefits (“AOBs”) to obtain a direct right of action against property insurers. In the typical scenario, an insured signs a contract with a contractor to do certain work and, in lieu of direct payment, the insured assigns a whole or part of their insurance claim to the contractor, allowing the contractor to sue the insurance company. In such scenarios, insurers typically see largely inflated damage estimates that far exceed market rates.
One of the questions posed in litigation surrounding AOBs is whether an assignee can sue the insurer for bad faith, or extra-contractual, penalties, fees, and general damages. Louisiana law generally provides that any post-loss assignment of bad faith claims against an insurer must be expressly provided for in the AOB. Franks v. Liberty Pers. Ins. Co., No. 22-2076, 2023 WL 2309819, at *2 (W.D. La. Mar. 1, 2023) (“The Assignment clearly assigns only the insurance proceeds, but does not expressly assign the bad faith claims, which are extra-contractual.”); Pontchartrain Gardens, Inc. v. State Farm General Ins. Co., 2009 WL 86671 (E.D. La. 1/13/09) (“[A]ny assignment of rights of action under the penalty statute(s) must be expressly provided for in the act of assignment.”).
The plaintiffs’ bar has recently attempted to narrow this general principle of law in an attempt to allow AOB assignees to obtain bad faith penalties, fees, and damages in a greater number of cases. Recently, in a series of cases brought by mitigation contractor, Cat 5, Pipes Miles Beckman, LLC has defeated those attempts, obtaining complete dismissals of the assignee’s bad faith claims. PMB obtained dismissal on these grounds in three state trial courts as well as the Louisiana Fifth Circuit Court of Appeal. See Cat 5 Coastal, LLC v. Liberty Mutual Insurance Company, No. 24-C-135 (La. 5th Cir. April 18, 2024).