Tennessee Supreme Court holds that insurance assignment clause was ineffective.

By Daniel A. Horwitz

A Victim was injured in a car accident, and he sought chiropractic services from the Plaintiff, Action Chiropractic Clinic.  Prior to receiving the chiropractic services, the Victim signed a contract with an “Assignment of Rights” clause.  In pertinent part, the Assignment of Rights clause stated:

For treatment provided, I hereby require my Health Insurance, Auto Insurance, or any other party involved to pay by check and mail directly to: ACTION CHIROPRACTIC

. . . .

For the medical expense benefits allowable, and otherwise payable to me under the current Insurance Policy, as payment toward the total charges for Professional Services rendered.

The Assignment of Rights clause specifically named Erie Insurance Exchange as the policy holder.  Of note, however, Erie Insurance Exchange was not the Victim’s insurance company.  Instead, Erie Insurance Exchange was the insurance provider for the driver who had injured the Victim in the car accident.

Action Chiropractic Clinic ultimately charged the Victim $5,010.00 for its chiropractic services.  Shortly thereafter, Erie Insurance Exchange entered into a settlement with the Victim and paid him $8,510.00 for all claims relating to the car accident.  However, neither the Victim nor Erie Insurance Exchange paid Action Chiropractic Clinic anything for the chiropractic services that it rendered to the Victim.  As a result, Action Chiropractic Clinic sued both the Victim and Erie Insurance Exchange seeking payment, among other things, under the “Assignment of Rights” provision.

This case concerns only the claim by Action Chiropractic Clinic against Erie Insurance Exchange.  The trial court dismissed the Clinic’s claim against Erie on the basis that the “Assignment of Rights” provision that the Victim had signed was invalid and ineffective.  An “assignment,” for legal purposes, is “a transfer of property or some other right from one person (the ‘assignor’) to another (the ‘assignee’).”[1]  Whether an assignment is valid is determined by general principles of contract law.[2]

The Tennessee Supreme Court ultimately determined that Erie Insurance Exchange did not have to pay Action Chiropractic Clinic under the purported assignment.  It emphasized that the clause only referred to the Victim’s insurance providers (“I hereby require my Health Insurance, Auto Insurance, or any other party involved to pay”), and that Erie Insurance Exchange was not the Victim’s insurance provider.  It also noted that Erie Insurance Exchange’s payment to the Victim was not for the purpose of medical benefits; instead, it was to settle a lawsuit related to a car accident.  Consequently, the Court held that: “the document at issue failed to effectively assign the proceeds of a claim between [the Victim] and Defendant Erie [Insurance Exchange].”

A crucial yet undecided question left open by this case, however, is whether the assignment would have been valid under Tennessee law even if it had been written more carefully.  Under Tennessee law, the assignment of personal injury claims is not permitted.  See Seymour v. Sierra, 98 S.W.3d 164, 165 (Tenn. Ct. App. 2002) (“Tennessee is not a ‘direct action’ state where a plaintiff can sue the liability insurance carrier of the defendant who allegedly caused the harm.”).  However, it remains undecided in Tennessee whether a party may assign the proceeds of a potential liability insurance claim.

In the author’s view, citizens should indeed have the right to assign the proceeds of a liability insurance claim, as the right to contract is sacrosanct under Tennessee law and there is no particularly compelling public policy reason why that right should be impaired in the context of insurance proceeds.  See, e.g., Tenn. Const. art. XI, § 2 (“Nothing contained in this Constitution shall impair the validity of any debts or contracts, or affect any rights of property or any suits, actions, rights of action or other proceedings in Courts of Justice.”); Tenn. Const. art. I, § 20 (“no . . . law impairing the obligations of contracts, shall be made.”).  For purposes of this case, though, the Tennessee Supreme Court “assume[d], without deciding, that such an assignment would be permissible had the language of the instrument in this case been sufficiently specific and definitive,” leaving that question for another day.

Read the Tennessee Supreme Court’s unanimous decision in Action Chiropractic Clinic, LLC v. Hyler here.

Questions about this article?  Email Daniel Horwitz at daniel.a.horwitz@gmail.com.

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[1]  6 Am. Jur. 2d Assignments § 1 (2008).  See also Black’s Law Dictionary (10th ed. 2014) (defining “assignment” as: “The transfer of rights or property”).

[2] Nashville Trust Co. v. First Nat. Bank, 123 Tenn. 617, 134 S.W. 311, 314 (1911) (“The assignment of a policy need not be in writing to be valid, but is governed by the rule applicable to ordinary simple contracts.”).