assignment of claims mean

At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What Is an Assignment of Claims?

An assignment of claims is a legal and financial process that allows one party to transfer or “assign” a claim to someone else, provided that the other party is in full knowledge of the assignment and agrees to it. In this process, the party that transfers the claim is called the assignor, and the party to whom the claim is transferred is called the assignee. Essentially, this situation entitles the assignee to the rights previously held by the assignor, according to the claim or contract. The assignment of claims, however, may also involve transference of some liabilities and legal responsibilities to the assignee.

There are many situations wherein assignment of claims can be applicable, such as in insurance claims , bankruptcies, and damages to compensate for an accident or injury. In the US, companies abide by the “Assignment of Claims Act of 1940” to carry out an assignment of claim when a contract between the said company and a client expires or is about to expire. One condition under the act is that there is a sum of $1,000 US Dollars or higher involved in the contract; if the sum is lower than that, then an assignment may not be able to push through.

The company may only assign the claim to an assignee of a “financing institution,” like banks, government-funded lending agencies, or trust companies or corporations. This condition ensures that the assignee is able to take on the responsibilities involving the claim, especially for financial aspects. The existing contract between the assignor and another party should also not state any problem with assigning the claim to a new assignee; otherwise, the party with whom the assignor has a contract can sue the assignor for contract violation. Another condition would be that the assignor can only assign the claim to only one assignee, and that the latter cannot transfer the claim to another party.

Many cases require that the assignment be formally filed, especially when it involves property of high value, such as a huge sum or money, land, or forms of collateral . Generally, the courts do not have to investigate why an assignment was filed, but require the filing primarily for documentation purposes. In this process, another contract should be drawn up, stating that the claim will be transferred from the assignor to the assignee. Once the contract is agreed to and the two parties have willingly signed the contract, the assignment of claims is complete and a novation takes place, making the assignee the new claim holder.

You might also Like

Recommended, as featured on:.

Related Articles

• What is an Assignment of Benefits?
• What is a Debt Assignment?
• What is an Assignment of Mortgage?

Discuss this Article

Post your comments.

• By: Vladimir Mucibabic An assignment of claims may be in order after an accident.

Article III, Section 2, Clause 1:

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;—to all Cases affecting Ambassadors, other public Ministers and Consuls;—to all Cases of admiralty and maritime Jurisdiction; to Controversies to which the United States shall be a Party;—to Controversies between two or more States; between a State and Citizens of another State, between Citizens of different States,—between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.

An assignment of a legal claim occurs when one party (the “assignor” ) transfers its rights in a cause of action to another party (the “assignee” ). 1 Footnote Black’s Law Dictionary 136 (9th ed. 2009) (defining “assignment” as “the transfer of rights or property” ). The Supreme Court has held that a private litigant may have standing to sue to redress an injury to another party when the injured party has assigned at least a portion of its claim for damages from that injury to the litigant. The Supreme Court in the 2000 case Vermont Agency of Natural Resources v. United States ex rel. Stevens held that private individuals may have Article III standing to bring a qui tam civil action in federal court under the federal False Claims Act (FCA) on behalf of the federal government if authorized to do so. 2 Footnote 529 U.S. 765, 768, 778 (2000) . The FCA imposes civil liability upon “any person” who, among other things, knowingly presents to the federal government a false or fraudulent claim for payment. 3 Footnote 31 U.S.C. § 3729(a) . To encourage citizens to enforce the Act, in certain circumstances, a private individual, known as a “relator,” may bring a civil action for violations of the Act. Such plaintiffs sue under the name of the United States and may receive a share of any recovered proceeds from the action. 4 Footnote Id. § 3730(d)(1)–(2) . Under the FCA, the relator is not merely the agent of the United States but an individual with an interest in the lawsuit itself. 5 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 772 ( “For the portion of the recovery retained by the relator . . . some explanation of standing other than agency for the Government must be identified.” ) (citing 31 U.S.C. § 3730 ).

Ordinarily, if the relator’s financial interest in the outcome of the case were merely a byproduct of the suit itself, there would be no injury sufficient for standing. 6 Footnote Id. at 772–73 ( “An interest unrelated to injury in fact is insufficient to give a plaintiff standing. . . . A qui tam relator has suffered no [invasion of a legally protected right]—indeed, the ‘right’ he seeks to vindicate does not even fully materialize until the litigation is completed and the relator prevails.” ) (citations omitted). The Supreme Court has held that a litigant’s interest in recovering attorneys’ fees or the costs of bringing suit by itself normally does not confer standing to sue. E.g. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 107 (1998) ( “The litigation must give the plaintiff some other benefit besides reimbursement of costs that are a byproduct of the litigation itself.” ); Diamond v. Charles, 476 U.S. 54, 70–71 (1986) ( “[T]he mere fact that continued adjudication would provide a remedy for an injury that is only a byproduct of the suit itself does not mean that the injury is cognizable under Art. III.” ). In Stevens , however, the Supreme Court recognized a distinction that confers standing upon qui tam plaintiffs in FCA cases. Justice Antonin Scalia, writing for the Court, determined that assignments of claims are distinguishable from cases in which a litigant has a mere financial interest in the outcome of the suit because the assignee-plaintiff actually owns a stake in the dispute as a legal matter. 7 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 773 . Justice Scalia drew support for this distinction from the long-standing historical practice of the government assigning a portion of its damages claim to a private party and allowing that party to assert the injury suffered by the federal government as a representative of the United States. 8 Footnote Id. at 774, 778 The Court noted the “long tradition of qui tam actions in England and the American colonies,” 9 Footnote Id. concluding that “Article III’s restriction of the judicial power to ‘Cases’ and ‘Controversies’ is properly understood to mean ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’” 10 Footnote Id. Although the Court held that the relator had standing to sue under the qui tam provision, it ultimately determined that the plaintiff could not maintain the action against a state agency for allegedly submitting false grant claims to the EPA because states were not “persons” subject to liability under the False Claims Act. Id. at 787 .

Eight years after deciding Stevens , the Supreme Court again found that an assignee of a claim had standing, even when the assignee had promised to remit all of the money it recovered in the proceedings to the assignor. 11 Footnote Sprint Commc’ns Co. v. APCC Servs., Inc. , 554 U.S. 269 , 271 (2008) . In Sprint Communications Co. v. APCC Services, Inc. , payphone operators had assigned their legal claims for money owed to them by long-distance communications carriers to third-party collection agencies. 12 Footnote Id. at 271–72 . The agencies were authorized to bring suit on behalf of the payphone operators and promised to pay all of the proceeds of the litigation to the payphone operators for a fee. 13 Footnote Id. at 272 . The Court held that these collection agencies had standing to pursue the operators’ claims because of the long history of courts’ acceptance of such claims. 14 Footnote Id. at 273–75 . The Court noted that “federal courts routinely entertain suits which will result in relief for parties that are not themselves directly bringing suit. Trustees bring suits to benefit their trusts; guardians ad litem bring suits to benefit their wards; receivers bring suit to benefit their receiverships; assignees in bankruptcy bring suit to benefit bankrupt estates; executors bring suit to benefit testator estates; and so forth.” Id. at 287–88 . Assignment was sufficient to transfer the injury to the collections agencies, and the injury to the operators that had been transferred to the collection agencies would be redressed by a favorable judicial decision, even if the agencies would subsequently pay all of the proceeds to the operators. 15 Footnote Id. at 286–87 ( “[I]f the [collection agencies] prevail in this litigation, the long-distance carriers would write a check to [them] for the amount of dial-around compensation owed. What does it matter what the [agencies] do with the money afterward?” ).

The Stevens and Sprint cases could have broader implications for Article III standing doctrine, as they suggest a way in which the constitutional limitations on standing may be bypassed through the assignment of rights to a third party. 16 Footnote See also ArtIII.S2.C1.6.4.3 Particularized Injury. For instance, if Congress enacts a federal statute recognizing an injury to the federal government that otherwise satisfies Article III’s requirements, it may assign a portion of its claim to a private party, thereby potentially giving that plaintiff standing to sue as a representative of the United States. 17 Footnote See Vt. Agency of Nat. Res. , 529 U.S. at 773 . This is essentially the operation of the False Claims Act. 18 Footnote 31 U.S.C. §§ 3729–3733 . However, it is unclear whether every such statute would necessarily resolve all Article III standing concerns. In Stevens and Sprint , the Court gave significant weight to the lengthy history of courts recognizing the types of assignments at issue when determining that the litigants in those cases had standing to sue. 19 Footnote See id. at 774, 778 ; Sprint Commc’ns Co. , 554 U.S. at 273–75 . Moreover, there may be a number of concerns about the constitutionality and practicality of using assignments to delegate core government functions (e.g., criminal prosecutions) to private parties when courts have not historically recognized claims based on such assignments, including concerns about interference with the Executive Branch’s Article II powers and prosecutorial discretion. 20 Footnote See Heather Elliott , Congress’s Inability to Solve Standing Problems , 91 B.U. L. Rev. 159 , 195–204 (2011) (questioning whether Congress’s assignment of claims to citizen suitors in order to confer standing would be constitutional or practical).

Assignment of insurance policies and claims | Practical Law

Assignment of insurance policies and claims

Practical law uk practice note w-031-6021  (approx. 19 pages).

The Federal Register

The daily journal of the united states government, request access.

Due to aggressive automated scraping of FederalRegister.gov and eCFR.gov, programmatic access to these sites is limited to access to our extensive developer APIs.

If you are human user receiving this message, we can add your IP address to a set of IPs that can access FederalRegister.gov & eCFR.gov; complete the CAPTCHA (bot test) below and click "Request Access". This process will be necessary for each IP address you wish to access the site from, requests are valid for approximately one quarter (three months) after which the process may need to be repeated.

An official website of the United States government.

If you want to request a wider IP range, first request access for your current IP, and then use the "Site Feedback" button found in the lower left-hand side to make the request.

Assignment of claims

An untraditional approach to combining the claims of plaintiffs; how it differs from class actions, joinder, consolidation, relation and coordination

A large class of plaintiffs engages you to bring a common action against a defendant or set of defendants. As counsel, you resolve to combine the plaintiffs’ various claims into a single lawsuit. In this article, we touch on some of the traditional approaches, such as a class action, joinder, consolidation, relation, and coordination. To that list, we add as an approach the assignment of claims, a procedural vehicle validated by the United States Supreme Court, but not typically employed to combine the claims of numerous plaintiffs.

Class actions

In Hansberry v. Lee (1940) 311 U.S. 32, the United States Supreme Court explained that “[t]he class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable. Courts are not infrequently called upon to proceed with causes in which the number of those interested in the litigation is so great as to make difficult or impossible the joinder of all because some are not within the jurisdiction or because their whereabouts is unknown or where if all were made parties to the suit its continued abatement by the death of some would prevent or unduly delay a decree. In such cases where the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation of the issues in which all have a common interest, the court will proceed to a decree.” ( Id. at pp. 41-42.)

In California’s state courts, class actions are authorized by Code of Civil Procedure section 382, which applies when the issue is “‘one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.’” ( Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955, 968; see also, e.g., Cal. Rules of Court, rules 3.760-3.771.) “The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” ( Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.) “The community of interest requirement involves three factors: ‘(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.’” ( Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435; see Civ. Code, § 1750 et seq. [Consumers Legal Remedies Act]; cf. Fed. Rules Civ.Proc., rule 23(a) [prerequisites for federal class action].)

Parties, acting as co-plaintiffs, can also obtain economies of scale by joining their claims in a single lawsuit. Under California’s permissive joinder statute, Code of Civil Procedure section 378 (section 378), individuals may join in one action as plaintiffs if the following conditions are met:

(a)(1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or

(2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.

(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief.

This strategy of joining multiple persons in one action has been referred to as a “mass action” in some decisions involving numerous plaintiffs. (See Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1113; Petersen v. Bank of America Corp . (2014) 232 Cal.App.4th 238, 240 ( Petersen ); cf. 28 U.S.C. § 1332(d)(11)(B) [federal definition of “mass action”].)

In Petersen , for example, 965 plaintiffs who borrowed money from Countrywide Financial Corporation in the mid-2000’s banded together and filed a single lawsuit against Countrywide and related entities. ( Petersen , supra , 232 Cal.App.4th at pp.  242-243.) The plaintiffs alleged Countrywide had developed a strategy to increase its profits by misrepresenting the loan terms and using captive real estate appraisers to provide dishonest appraisals that inflated home prices and induced borrowers to take loans Countrywide knew they could not afford. ( Id. at p. 241.) The plaintiffs alleged Countrywide had no intent to keep these loans, but to bundle and sell them on the secondary market to unsuspecting investors who would bear the risk the borrowers could not repay. ( Id. at pp. 241, 245.) Countrywide and the related defendants demurred on the ground of misjoinder of the plaintiffs in violation of section 378. The trial court sustained the demurrer without leave to amend and dismissed all plaintiffs except the one whose name appeared first in the caption. ( Id . at p. 247.) The Court of Appeal reversed and remanded for further proceedings. ( Id . at p. 256.)

Petersen resolved two questions. First, it concluded the operative pleading alleged wrongs arising out of “‘the same . . . series of transactions’” that would entail litigation of at least one common question of law or fact. ( Petersen, supra, 232 Cal.App.4th at p. 241.) The appellate court noted the individual damages among the 965 plaintiffs would vary widely, but the question of liability provided a basis for joining the claims in a single action. ( Id. at p. 253.) Second, the appellate court concluded “California’s procedures governing permissive joinder are up to the task of managing mass actions like this one.” ( Id. at p. 242.)

Consolidation

Code of Civil Procedure section 1048, subdivision (a) provides that, “[w]hen actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” (See also Fed. Rules Civ.Proc., rule 42.)

There are two types of consolidation. The first is a consolidation for purposes of trial only, when the actions remain otherwise separate. The second is a complete consolidation or consolidation for all purposes, when the actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment. ( Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1147 ( Hamilton ).)

Consolidation is designed to promote trial convenience and economy by avoiding duplication of procedure, particularly in the proof of issues common to the various actions. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleadings, § 341, p. 470.) Unless all parties in the involved cases stipulate, consolidation requires a written, noticed motion (Cal. Rules of Court, rule 3.350(a); Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 514), and is subject to the trial court’s discretion. ( Hamilton, supra, 22 Cal.4th at p. 1147.)

In a procedure somewhat similar to consolidation, under California Rules of Court, rule 3.300(a), a pending civil action may be related to other civil actions (whether still pending or already resolved by dismissal or judgment) if the matters “[a]rise from the same or substantially identical transactions, incidents, or events requiring the determination of the same or substantially identical questions of law or fact” or “[a]re likely for other reasons to require substantial duplication of judicial resources if heard by different judges.” ( Id. , rule 3.300(a)(2), (4).) An order to relate cases may be made only after service of a notice on all parties that identifies the potentially related cases. No written motion is required. ( Id ., rule 3.300(h)(1).) The Judicial Council provides a standard form for this purpose. When a trial court agrees the cases listed in the notice are related, all are typically assigned to the trial judge in whose department the first case was filed. ( Id ., rule 3.300(h)(1)(A).)

Related cases are not consolidated cases. Related cases maintain their separate identities but are heard by the same trial judge. Consolidated cases, in contrast, essentially merge and proceed under a single case number.

Coordination

Under Code of Civil Procedure section 404, the Chairperson of the Judicial Council is authorized to coordinate actions filed in different courts that share common questions of fact or law. (See Cal. Rules of Court, rule 3.500 et seq.) The principles underlying coordination are similar to those that govern consolidation of actions filed in a single court. (See Pesses v. Superior Court (1980) 107 Cal.App.3d 117, 123; see also 28 U.S.C. § 1407 [complex and multidistrict litigation].)

Thus, for example, in McGhan Med. Corp. v. Superior Court (1992) 11 Cal.App.4th 804 ( McGhan ), the plaintiffs petitioned for coordination of 300 to 600 breast implant cases pending in 20 different counties. Coordination was denied because the motion judge found that common questions did not predominate “in that the cases involve[d] different implants, different designs, different warnings, different defendants, different theories of defect, different modes of failure, and different injuries.” ( Id. at p. 808.) Among other factors, the trial court concluded that it was impractical to send hundreds of cases to a single county and that the benefits of coordination could be best achieved by voluntary cooperation among the judges in the counties where the cases were pending. ( Id. at p. 808, fn. 2.)

The Court of Appeal reversed in an interlocutory proceeding, ruling the trial court had misconceived the requirements of a coordinated proceeding. ( McGhan, supra, 11 Cal.App.4th at p. 811.) As the appellate court explained, Code of Civil Procedure section 404.7 gives the Judicial Council great flexibility and broad discretion over the procedure in coordinated actions. ( Id. at p. 812.) Thus, on balance, the coordinating judge would be better off confronting the coordination drawbacks (including difficulties arising from unique cases, discovery difficulties, multiple trials, the necessity of travel, and occasional delay) because the likely benefits (efficient discovery and motion practice) were so much greater. ( Id. at pp. 812-814.)

Civil Code section 954 states “[a] thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” The term “thing in action” means “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) California’s Supreme Court has summarized these provisions by stating: “A cause of action is transferable, that is, assignable, by its owner if it arises out of a legal obligation or a violation of a property right. . . .” ( Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The enactment of Civil Code sections 953 and 954 lifted many restrictions on assignability of causes of action. ( Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461, 464; AMCO Ins. Co. v. All Solutions Ins. Agency, LLC (2016) 244 Cal.App.4th 883, 891 ( AMCO ).)

Thus, California’s statutes establish the general rule that causes of action are assignable. ( AMCO, supra , 244 Cal.App.4th at pp. 891-892.) This general rule of assignability applies to causes of action arising out of a wrong involving injury to personal or real property. ( Time Out, LLC v. Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1009; see also, e.g., Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1381 [“‘assignability of things [in action] is now the rule; nonassignability, the exception. . .’”].)

Although the assignment of claims on behalf of others to an assignee, or group of assignees, is not unique, it has not typically been used as a procedural vehicle for combining the claims of numerous plaintiffs. But, that’s not to say it can’t be done.

In fact, the United States Supreme Court has sanctioned such an approach. In Sprint Communications Co., L.P. v. APCC Services, Inc. (2008) 554 U.S. 269 ( Sprint ), approximately 1,400 payphone operators assigned legal title to their claims for amounts due from Sprint, AT&T, and other long-distance carriers to a group of collection firms described as “aggregators.” ( Id. at p. 272.) The legal issue presented to the United States Supreme Court was whether the assignees had standing to pursue the claims in federal court even though they had promised to remit the proceeds of the litigation to the assignor. ( Id . at p. 271.) The Court concluded the assignees had standing.

In support of its conclusion, the Court recognized the long-standing right to assign lawsuits:

. . . [C]ourts have long found ways to allow assignees to bring suit; that where assignment is at issue, courts — both before and after the founding — have always permitted the party with legal title alone to bring suit; and that there is a strong tradition specifically of suits by assignees for collection. We find this history and precedent ‘well nigh conclusive’ in respect to the issue before us: Lawsuits by assignees, including assignees for collection only, are ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’

( Sprint , supra , 554 U.S . at p. 285.)

On this basis, the Court concluded:

Petitioners have not offered any convincing reason why we should depart from the historical tradition of suits by assignees, including assignees for collection. In any event, we find that the assignees before us satisfy the Article III standing requirements articulated in more modern decisions of this Court.

( Sprint , supra , 554 U.S at pp. 285-286.)

The Court also considered the argument that the aggregators were attempting to circumvent the class-action requirements of Federal Rule of Civil Procedure 23. ( Sprint, supra, 554 U.S. at pp. 290-291.) The Court rejected this argument as a barrier to aggregation by assignment on the grounds that (1) class actions were permissive, not mandatory, and (2) “class actions constitute but one of several methods for bringing about aggregation of claims, i.e., they are but one of several methods by which multiple similarly situated parties get similar claims resolved at one time and in one federal forum. [Citations.]” ( Id. at p. 291.)

Granted, Sprint arose in the context of Article III, a “prudential standing” analysis. However, in reaching its decision that assignees had standing, the Court relied significantly on three California state decisions addressing assignment of rights under California law. (See Sprint, supra, 554 U.S. at pp. 294-296.)

Under California law, assignment of claims is not a panacea. Not all claims can be assigned. In California, assignment is not allowed for tort causes of action based on “wrongs done to the person, the reputation or the feelings of an injured party,” including “causes of action for slander, assault and battery, negligent personal injuries, seduction, breach of marriage promise, and malicious prosecution.” ( AMCO, supra , 244 Cal.App.4th at p. 892 [exceptions to assignment also include “legal malpractice claims and certain types of fraud claims”].) Other assignments are statutorily prohibited. (See, e.g., Civ. Code, § 2985.1 [regulating assignment of real property sales contracts]; Gov. Code, § 8880.325 [state lottery prizes not assignable].)

Likewise, because a right of action cannot be split, a partial assignment will require the joinder of the partial assignor as an indispensable party. (See, e.g., Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595 [“[W]here . . . there has been a partial assignment all parties claiming an interest in the assignment must be joined as plaintiffs . . . ”]; 4 Witkin, Cal. Procedure, supra, Pleadings, § 131(2), p. 198 [“If the assignor has made only a partial assignment, the assignor remains beneficially interested in the claim and the assignee cannot sue alone”].)

That said, California’s rules of law regarding standing and assignments do not prohibit an assignee’s aggregation of a large number of claims against a single defendant or multiple defendants into a single lawsuit. To the contrary, no limitations or conditions on this type of aggregation of assigned claims is imposed from other rules of law, such as California’s compulsory joinder statute. (See Sprint , supra , 554 U.S. at p. 292 [to address practical problems that might arise because aggregators, not payphone operators, were suing, district “court might grant a motion to join the payphone operators to the case as ‘required’ parties” under Fed. Rules Civ.Proc., rule 19].)

There are many procedural approaches to evaluate when seeking to combine the claims of multiple plaintiffs. Class actions and joinders are more traditional methods that trial counsel rely on to bring claims together. Although a largely unexplored procedural approach, assignment appears to be an expedient way of combining the claims of numerous plaintiffs. It avoids the legal requirements imposed for class actions and joinders, and it sidesteps a trial judge’s discretion regarding whether to consolidate, relate, or coordinate actions. Indeed, under the right circumstances, an assignment of claims might provide a means of bypassing class action waivers in arbitration agreements. Perhaps an assignment of claims should be added to the mix of considerations when deciding how to bring a case involving numerous plaintiffs with similar claims against a common defendant or set of defendants.

Judith Posner

Judith Posner is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

Gerald Serlin

Gerald Serlin is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

Subject Matter Index

Copyright © 2024 by the author. For reprint permission, contact the publisher: Advocate Magazine

• Featured Articles
• Recent Issues
• Advertising
• Contributors Writer's Guidelines
• Search Advanced Search

• Type 2 Diabetes
• Heart Disease
• Digestive Health
• Multiple Sclerosis
• Diet & Nutrition
• Supplements
• Health Insurance
• Public Health
• Patient Rights
• Caregivers & Loved Ones
• End of Life Concerns
• Health News
• Thyroid Test Analyzer
• Doctor Discussion Guides
• Hemoglobin A1c Test Analyzer
• Lipid Test Analyzer
• Complete Blood Count (CBC) Analyzer
• What to Buy
• Editorial Process
• Meet Our Medical Expert Board

Balance Billing in Health Insurance

• How It Works
• When It Happens
• What to Do If You Get a Bill
• If You Know in Advance

Balance billing happens after you’ve paid your deductible , coinsurance or copayment and your insurance company has also paid everything it’s obligated to pay toward your medical bill. If there is still a balance owed on that bill and the healthcare provider or hospital expects you to pay that balance, you’re being balance billed.

This article will explain how balance billing works, and the rules designed to protect consumers from some instances of balance billing.

Is Balance Billing Legal or Not?

Sometimes it’s legal, and sometimes it isn’t; it depends on the circumstances.

Balance billing is generally illegal :

• When you have Medicare and you’re using a healthcare provider that accepts Medicare assignment .
• When you have Medicaid and your healthcare provider has an agreement with Medicaid.
• When your healthcare provider or hospital has a contract with your health plan and is billing you more than that contract allows.
• In emergencies (with the exception of ground ambulance charges), or situations in which you go to an in-network hospital but unknowingly receive services from an out-of-network provider.

In the first three cases, the agreement between the healthcare provider and Medicare, Medicaid, or your insurance company includes a clause that prohibits balance billing.

For example, when a hospital signs up with Medicare to see Medicare patients, it must agree to accept the Medicare negotiated rate, including your deductible and/or coinsurance payment, as payment in full. This is called accepting Medicare assignment .

And for the fourth case, the No Surprises Act , which took effect in 2022, protects you from "surprise" balance billing.

Balance billing is usually legal :

• When you choose to use a healthcare provider that doesn’t have a relationship or contract with your insurer (including ground ambulance charges, even after implementation of the No Surprises Act).
• When you’re getting services that aren’t covered by your health insurance policy, even if you’re getting those services from a provider that has a contract with your health plan.

The first case (a provider not having an insurer relationship) is common if you choose to seek care outside of your health insurance plan's network.

Depending on how your plan is structured, it may cover some out-of-network costs on your behalf. But the out-of-network provider is not obligated to accept your insurer's payment as payment in full. They can send you a bill for the remainder of the charges, even if it's more than your plan's out-of-network copay or deductible.

(Some health plans, particularly HMOs and EPOs , simply don't cover non-emergency out-of-network services at all, which means they would not cover even a portion of the bill if you choose to go outside the plan's network.)

Getting services that are not covered is a situation that may arise, for example, if you obtain cosmetic procedures that aren’t considered medically necessary, or fill a prescription for a drug that isn't on your health plan's formulary . You’ll be responsible for the entire bill, and your insurer will not require the medical provider to write off any portion of the bill—the claim would simply be rejected.

Prior to 2022, it was common for people to be balance billed in emergencies or by out-of-network providers that worked at in-network hospitals. In some states, state laws protected people from these types of surprise balance billing if they had state-regulated health plans.

But not all states had these protections. And the majority of people with employer-sponsored health insurance are covered under self-insured plans, which are not subject to state regulations. This is why the No Surprises Act was so necessary.

How Balance Billing Works

When you get care from a doctor, hospital, or other healthcare provider that isn’t part of your insurer’s provider network  (or, if you have Medicare, from a provider that has opted out of Medicare altogether , which is rare but does apply in some cases ), that healthcare provider can charge you whatever they want to charge you (with the exception of emergencies or situations where you receive services from an out-of-network provider while you're at an in-network hospital).

Since your insurance company hasn’t negotiated any rates with that provider, they aren't bound by a contract with your health plan.

Medicare Limiting Charge

If you have Medicare and your healthcare provider is a nonparticipating provider but hasn't entirely opted out of Medicare, you can be charged up to 15% more than the allowable Medicare amount for the service you receive (some states impose a lower limit).

This 15% cap is known as the limiting charge, and it serves as a restriction on balance billing in some cases. If your healthcare provider has opted out of Medicare entirely, they cannot bill Medicare at all and you'll be responsible for the full cost of your visit.

If your health insurance company agrees to pay a percentage of your out-of-network care, the health plan doesn’t pay a percentage of what’s actually billed . Instead, it pays a percentage of what it says should have been billed, otherwise known as a reasonable and customary amount.

As you might guess, the reasonable and customary amount is usually lower than the amount you’re actually billed. The balance bill comes from the gap between what your insurer says is reasonable and customary, and what the healthcare provider or hospital actually charges.

Let's take a look at an example in which a person's health plan has 20% coinsurance for in-network hospitalization and 40% coinsurance for out-of-network hospitalization. And we're going to assume that the No Surprises Act does not apply (ie, that the person chooses to go to an out-of-network hospital, and it's not an emergency situation).

In this scenario, we'll assume that the person already met their $1,000 in-network deductible and $2,000 out-of-network deductible earlier in the year (so the example is only looking at coinsurance).

And we'll also assume that the health plan has a $6,000 maximum out-of-pocket for in-network care, but no cap on out-of-pocket costs for out-of-network care:

When Does Balance Billing Happen?

In the United States, balance billing usually happens when you get care from a healthcare provider or hospital that isn’t part of your health insurance company’s provider network or doesn’t accept Medicare or Medicaid rates as payment in full.

If you have Medicare and your healthcare provider has opted out of Medicare entirely, you're responsible for paying the entire bill yourself. But if your healthcare provider hasn't opted out but just doesn't accept assignment with Medicare (ie, doesn't accept the amount Medicare pays as payment in full), you could be balance billed up to 15% more than Medicare's allowable charge, in addition to your regular deductible and/or coinsurance payment.

Surprise Balance Billing

Receiving care from an out-of-network provider can happen unexpectedly, even when you try to stay in-network. This can happen in emergency situations—when you may simply have no say in where you're treated or no time to get to an in-network facility—or when you're treated by out-of-network providers who work at in-network facilities.

For example, you go to an in-network hospital, but the radiologist who reads your X-rays isn’t in-network. The bill from the hospital reflects the in-network rate and isn't subject to balance billing, but the radiologist doesn’t have a contract with your insurer, so they can charge you whatever they want. And prior to 2022, they were allowed to send you a balance bill unless state law prohibited it.

Similar situations could arise with:

• Anesthesiologists
• Pathologists (laboratory doctors)
• Neonatologists (doctors for newborns)
• Intensivists (doctors who specialize in ICU patients)
• Hospitalists (doctors who specialize in hospitalized patients)
• Radiologists (doctors who interpret X-rays and scans)
• Ambulance services to get you to the hospital, especially air ambulance services, where balance billing was frighteningly common
• Durable medical equipment suppliers (companies that provide the crutches, braces, wheelchairs, etc. that people need after a medical procedure)

These "surprise" balance billing situations were particularly infuriating for patients, who tended to believe that as long as they had selected an in-network medical facility, all of their care would be covered under the in-network terms of their health plan.

To address this situation, many states enacted consumer protection rules that limited surprise balance billing prior to 2022. But as noted above, these state rules don't protect people with self-insured employer-sponsored health plans, which cover the majority of people who have employer-sponsored coverage.

There had long been broad bipartisan support for the idea that patients shouldn't have to pay additional, unexpected charges just because they needed emergency care or inadvertently received care from a provider outside their network, despite the fact that they had purposely chosen an in-network medical facility. There was disagreement, however, in terms of how these situations should be handled—should the insurer have to pay more, or should the out-of-network provider have to accept lower payments? This disagreement derailed numerous attempts at federal legislation to address surprise balance billing.

But the Consolidated Appropriations Act, 2021, which was enacted in December 2020, included broad provisions (known as the No Surprises Act) to protect consumers from surprise balance billing as of 2022. The law applies to both self-insured and fully-insured plans, including grandfathered plans, employer-sponsored plans, and individual market plans.

It protects consumers from surprise balance billing charges in nearly all emergency situations and situations when out-of-network providers offer services at in-network facilities, but there's a notable exception for ground ambulance charges.

This is still a concern, as ground ambulances are among the medical providers most likely to balance bill patients and least likely to be in-network, and patients typically have no say in what ambulance provider comes to their rescue in an emergency situation. But other than ground ambulances, patients are no longer subject to surprise balance bills as of 2022.

The No Surprises Act did call for the creation of a committee to study ground ambulance charges and make recommendations for future legislation to protect consumers. The Biden Administration announced the members of that committee in late 2022, and the committee began holding meetings in May 2023.

Balance billing continues to be allowed in other situations (for example, the patient simply chooses to use an out-of-network provider). Balance billing can also still occur when you’re using an in-network provider, but you’re getting a service that isn’t covered by your health insurance. Since an insurer doesn’t negotiate rates for services it doesn’t cover, you’re not protected by that insurer-negotiated discount. The provider can charge whatever they want, and you’re responsible for the entire bill.

It is important to note that while the No Surprises Act prohibits balance bills from out-of-network working at in-network facilities, the final rule for implementation of the law defines facilities as "hospitals, hospital outpatient departments, critical access hospitals, and ambulatory surgical centers." Other medical facilities are not covered by the consumer protections in the No Surprises Act.

Balance billing doesn’t usually happen with in-network providers or providers that accept Medicare assignment . That's because if they balance bill you, they’re violating the terms of their contract with your insurer or Medicare. They could lose the contract, face fines, suffer severe penalties, and even face criminal charges in some cases.

If You Get an Unexpected Balance Bill

Receiving a balance bill is a stressful experience, especially if you weren't expecting it. You've already paid your deductible and coinsurance and then you receive a substantial additional bill—what do you do next?

First, you'll want to try to figure out whether the balance bill is legal or not. If the medical provider is in-network with your insurance company, or you have Medicare or Medicaid and your provider accepts that coverage, it's possible that the balance bill was a mistake (or, in rare cases, outright fraud).

And if your situation is covered under the No Surprises Act (ie, an emergency, or an out-of-network provider who treated you at an in-network facility), you should not be subject to a balance bill. So be sure you understand what charges you're actually responsible for before paying any medical bills.

If you think that the balance bill was an error, contact the medical provider's billing office and ask questions. Keep a record of what they tell you so that you can appeal to your state's insurance department if necessary.

If the medical provider's office clarifies that the balance bill was not an error and that you do indeed owe the money, consider the situation—did you make a mistake and select an out-of-network healthcare provider? Or was the service not covered by your health plan?

If you went to an in-network facility for a non-emergency, did you waive your rights under the No Surprises Act (NSA) and then receive a balance bill from an out-of-network provider? This is still possible in limited circumstances, but you would have had to sign a document indicating that you had waived your NSA protections.

Negotiate With the Medical Office

If you've received a legitimate balance bill, you can ask the medical office to cut you some slack. They may be willing to agree to a payment plan and not send your bill to collections as long as you continue to make payments.

Or they may be willing to reduce your total bill if you agree to pay a certain amount upfront. Be respectful and polite, but explain that the bill caught you off guard. And if it's causing you significant financial hardship, explain that too.

The healthcare provider's office would rather receive at least a portion of the billed amount rather than having to wait while the bill is sent to collections. So the sooner you reach out to them, the better.

Negotiate With Your Insurance Company

You can also negotiate with your insurer. If your insurer has already paid the out-of-network rate on the reasonable and customary charge, you’ll have difficulty filing a formal appeal since the insurer  didn’t actually deny your claim . It paid your claim, but at the out-of-network rate.

Instead, request a reconsideration. You want your insurance company to  reconsider the decision to cover this as out-of-network care , and instead cover it as in-network care. You’ll have more luck with this approach if you had a compelling medical or logistical reason for choosing an out-of-network provider .

If you feel like you’ve been treated unfairly by your insurance company, follow your health plan’s internal complaint resolution process.

You can get information about your insurer’s complaint resolution process in your benefits handbook or from your human resources department. If this doesn’t resolve the problem, you can complain to your state’s insurance department.

• Learn more about your internal and external appeal rights.
• Find contact information for your Department of Insurance using this resource .

If your health plan is self-funded , meaning your employer is the entity actually paying the medical bills even though an insurance company may administer the plan, then your health plan won't fall under the jurisdiction of your state’s department of insurance.

Self-funded plans are instead regulated by the Department of Labor’s Employee Benefit Services Administration. Get more information from the  EBSA’s consumer assistance web page  or by calling an EBSA benefits advisor at 1-866-444-3272.

If You Know You’ll Be Legally Balance Billed

If you know in advance that you’ll be using an out-of-network provider or a provider that doesn’t accept Medicare assignment, you have some options. However, none of them are easy and all require some negotiating.

Ask for an estimate of the provider’s charges. Next, ask your insurer what they consider the reasonable and customary charge for this service to be. Getting an answer to this might be tough, but be persistent.

Once you have estimates of what your provider will charge and what your insurance company will pay, you’ll know how far apart the numbers are and what your financial risk is. With this information, you can narrow the gap. There are only two ways to do this: Get your provider to charge less or get your insurer to pay more.

Ask the provider if he or she will accept your insurance company’s reasonable and customary rate as payment in full. If so, get the agreement in writing, including a no-balance-billing clause.

If your provider won’t accept the reasonable and customary rate as payment in full, start working on your insurer. Ask your insurer to increase the amount they’re calling reasonable and customary for this particular case.

Present a convincing argument by pointing out why your case is more complicated, difficult, or time-consuming to treat than the average case the insurer bases its reasonable and customary charge on.

Single-Case Contract

Another option is to ask your insurer to negotiate a  single-case contract   with your out-of-network provider for this specific service.

A single-case contract is more likely to be approved if the provider is offering specialized services that aren't available from locally-available in-network providers, or if the provider can make a case to the insurer that the services they're providing will end up being less expensive in the long-run for the insurance company.

Sometimes they can agree upon a single-case contract for the amount your insurer usually pays its in-network providers. Sometimes they’ll agree on a single-case contract at the discount rate your healthcare provider accepts from the insurance companies she’s already in-network with.

Or, sometimes they can agree on a single-case contract for a percentage of the provider’s billed charges. Whatever the agreement, make sure it includes a no-balance-billing clause.

Ask for the In-Network Coinsurance Rate

If all of these options fail, you can ask your insurer to cover this out-of-network care using your in-network coinsurance rate. While this won’t prevent balance billing, at least your insurer will be paying a higher percentage of the bill since your coinsurance for in-network care is lower than for out-of-network care.

If you pursue this option, have a convincing argument as to why the insurer should treat this as in-network. For example, there are no local in-network surgeons experienced in your particular surgical procedure, or the complication rates of the in-network surgeons are significantly higher than those of your out-of-network surgeon.

Balance billing refers to the additional bill that an out-of-network medical provider can send to a patient, in addition to the person's normal cost-sharing and the payments (if any) made by their health plan. The No Surprises Act provides broad consumer protections against "surprise" balance billing as of 2022.

A Word From Verywell

Try to prevent balance billing by staying in-network, making sure your insurance company covers  the services you’re getting, and complying with any pre-authorization requirements. But rest assured that the No Surprises Act provides broad protections against surprise balance billing.

This means you won't be subject to balance bills in emergencies (except for ground ambulance charges, which can still generate surprise balance bills) or in situations where you go to an in-network hospital but unknowingly receive care from an out-of-network provider.

Congress.gov. H.R.133—Consolidated Appropriations Act, 2021 . Enacted December 27, 2021.

Kona M. The Commonwealth Fund. State balance billing protections . April 20, 2020.

Data.CMS.gov. Opt Out Affidavits .

Chhabra, Karan; Schulman, Kevin A.; Richman, Barak D. Health Affairs. Are Air Ambulances Truly Flying Out Of Reach? Surprise-Billing Policy And The Airline Deregulation Act . October 17, 2019.

Kaiser Family Foundation. 2022 Employer Health Benefits Survey .

Centers for Medicare and Medicaid Services. Members of New Federal Advisory Committee Named to Help Improve Ground Ambulance Disclosure and Billing Practices for Consumers . December 13, 2022.

Centers for Medicare and Medicaid Services. Advisory Committee on Ground Ambulance and Patient Billing (GAPB) .

Internal Revenue Service; Employee Benefits Security Administration; Health and Human Services Department. Requirements Related to Surprise Billing . August 26, 2022.

National Conference of State Legislatures. States Tackling "Balance Billing" Issue . July 2017.

By Elizabeth Davis, RN Elizabeth Davis, RN, is a health insurance expert and patient liaison. She's held board certifications in emergency nursing and infusion nursing.

Jurisdictions

A list of all countries, regions and trading blocs covered by Legal 500 rankings and research list of all countries and trading blocs covered by Legal 500

Green Guide

Exploring the legal sector’s engagement with a green transition

Future Lawyers

The student’s guide to the UK legal profession

Deutschland DE

Auflistung und Ranking von ca. 400 Anwaltskanzleien verschiedener Praxisbereiche in Deutschland

Plus de 300 cabinets d’avocats opérant en France

Global directory of profiled law firms

Barristers’ Sets

Directory of profiled sets

Law Firm Networks

International law firm network index

Service Providers

Suppliers offering support services to legal professionals

Firms in the Spotlight

Featured law firms in specific practice areas and jurisdictions

Firms to Watch

Firms To Watch recognises emerging practices, specialist boutiques and ground-breaking firms that may not otherwise be ranked in Legal 500.

Meet the Team

Meet the team provides extra insight into a specific team’s capabilities and expertise above and beyond what is included within Legal 500 rankings.

Hall of Fame

Law firm partners with long-term experience at the top of the profession

Interview with…

Explore firms’ practices, capabilities, values and cultures through expert interviews with partners

Enterprise GC

An elite, exclusive residential conference bringing together market-leading general counsels

GC Magazine

Leading content for general counsel

GC Powerlist

Recognising VIP general counsel for their innovation, impact and market-leading standing within major global economies

In-House Lawyer

The magazine of choice of the in-house counsel of the UK and EMEA

Comparative Guides

Knowledge centre.

Examining legal perspectives on specific topics across different countries

News & Developments

Latest news and thought leadership from law firms around the world

Special Reports

In-depth reports on legal trends and insights from global law experts.

Legal Business

The market-leading monthly magazine for legal professionals at elite law firms globally

Upcoming Events

Legal 500’s extensive, market-leading programme of summits, awards, powerlist receptions, roundtables delivering cutting-edge discussion and debate globally

Previous Events

Highlights, thought leadership and insights from past legal events and webinars

Corporate Conversations

Insightful discussions with industry leaders on pivotal legal topics

Legal 500 TV

Find out more about the team behind the world’s most successful and highly respected legal market research organisation

Answers to Legal 500’s most frequently asked questions

Submissions

Comprehensive guidance on how to showcase your firm’s capabilities to the world’s most highly respected legal market research team

Bespoke practice area or jurisdictional reporting

Marketing Resources

Display your Legal 500 Ranking on your website

Contact Legal 500 for more information on submissions, commercial and marketing opportunities or more details of our portfolio of research products

Newsletters

Sign up for more information on our portfolio of research products

Rankings open close

Firms open close, lawyers open close, in-house open close, knowledge centre open close, events open close, about us open close, assignment of claims: are there any constraints to assigning claims or seeking cost guarantees.

June 18, 2019 > > Litigation & Dispute Resolution

IR Global | View firm profile

The following article discusses session three in the IR Global Virtual Series on 'Litigation Funding: Handling commercial and financial disputes

Germany – FW The assignment of claims to a third party for the purpose of their recovery is allowed without further ado, if the assignee bears the full financial risk of recovering the claims and acts for his own account (e.g. factoring).

If an assignee collects debts for the account of the assignor and if the debt collection is conducted as a stand-alone business, this is considered a collection service (Inkassodienstleistung) under the Legal Services Act (Rechtsdienstleistungsgesetz).

Pursuant to the latter, persons who provide such collection services (collection service providers) have to seek the permission of competent authorities and have to be registered with the Legal Services Register (Rechtsdienstleistungsregister). The assignment of claims to a collection service provider which is not registered is null and void; the unauthorised collection service provider lacks the capacity to sue.

With regard to certain types of litigation, e.g. consumer actions, the assignment of claims (to registered collection service providers) is common. In general, such assignments appear reasonable to pool small claims in order to benefit from synergy effects and to create a certain ‘balance of power’ vis-à-vis more financially powerful counter-parties. With regard to bigger claims, however, litigation funding will usually be the better, or even only, option to get financial support from third parties.

Spain – DJ The situation is similar in Spain, because the Spanish civil courts were inspired by the Napoleonic French Code. A lot of opportunistic funds arrived in Spain following the economic crisis, to buy bad credits and assets from banks. This has led to a lot of assignments of claims and the courts have established that they are valid and enforceable.

France – MCC Contractual assignment of claims is valid under French law with a condition and a limit. As a condition, the claim has to be fundamentally legitimate and conform to the public order. The debtor’s consent is not required unless the right was provided to be non-assignable.

Unless the debtor has already agreed to it, the assignment may be set up against him only if it was previously served to him by a Bailiff, or he has acknowledged it. The debtor may set up against the assignee defences inherent to the debt itself, such as nullity, the defence of non-performance, termination or the right to set off related debts.

He may also set up defences which arose from the relations with the assignor before the assignment became enforceable against him, such as the grant of a deferral, the release of a debt, or the set-off of debts which are not related. The assignor and the assignee are jointly and severally liable for any additional costs arising from the assignment which the debtor did not have to advance. Subject to any contractual term to the contrary, the burden of these costs lies on the assignee.

As a limit, if the claim subject to assignment is litigious, the debtor may obtain a release from the assignee by reimbursing him the actual price paid for the assignment, plus costs and reasonable expenses, plus interest calculated from the date on which the assignee paid the price of the assignment made to him. The claim then disappears.

Because of this rule called ‘retrait litigieux’, assignees have to be very careful and research what happened before the assignment.

US – ES There is no prohibition in the US against assigning a claim, or part of a claim, to a third party, but, of course, any third party taking an assignment of all or part of the claim is subject to all potential offsets and defences that exist against the primary holder of the claim.

Assigning claims is done fairly often, mostly in the intellectual property patent world. Patent trolls are big in the US, buying up patent claims and aggressively litigating and pursuing those claims.

Sweden – DE Almost any claim can be assigned in Sweden, the main rule is that the original claimant must have initiated a lawful claim, then it can be assigned. Claims based on unlawful contracts (Pactum Turpe) can neither be enforced by the first holder of the claim, nor its successor. Apart from that, there are no restrictions of any kind, or any constraints to assigned claims.

As far as cost guarantees are concerned, we have the same situation as any other European country in that EU citizens or companies founded in another country within the EU cannot be forced to provide a guarantee for legal costs in litigation proceedings in Sweden.

The same applies for claimants in a country that has entered into an international agreement with Sweden, such as The Hague Convention.

Austria – KO If you are representing a client from outside the EU, the opponent may ask the court to order a cost deposit covering all the procedural costs of the defendant.

US – ES Is there a limit on that?

Austria – KO No, if you have a multi million-dollar dispute, your client pays the court fees of 1.2 per cent, plus also the estimated court-related fees including legal fees for the defendant. The policy is clear – if someone is suing us from somewhere in the world and we, as a defendant in Austria, end up winning the case, we might not be able to enforce our cost award against this claimant. As a result, there is an interest of security deposit which has to be paid upon request by a claimant outside the EU.

US – ES Do you find that a successful application by a defendant to require a large security deposit will often end a case?

Austria – KO Yes, it’s one of the best strategies to fend off a claimant or to make them reduce the claim, and a common strategy for the defendant’s lawyer to ask for a huge security deposit. It’s at the discretion of the judge, but overall you will have to deposit a huge amount of money to get the case going. There is discussion going on about legislation to reduce that, but there are two interests to be weighed against each other.

It’s another argument for why third-party funding can be crucial to get cases going.

As to assignments, one single action containing several claims is permitted if the claims get assigned to another legal entity; such legal entity acts as the sole claimant if the claims rely on the same or similar legal and factual basis. The concept has been approved by the Supreme Court.

Hong Kong – NG An order for security for costs in litigation offers protection to a party from the risk of their opponent not being able to pay the party’s litigation costs if ordered to do so.

Applications for security for costs are a common feature of civil litigation before the first-instance courts in Hong Kong. Sometimes liability for security for costs and the amount can be agreed between the parties. As for the form of the security for costs, the most common method to give security is to make a payment into court. Other methods included an undertaking to pay, a bond, a bank guarantee or a charge.

Despite their abolition in some other common law jurisdictions, the crimes and torts of maintenance and champerty are still part of Hong Kong law. Third party funding is considered to infringe the doctrines of champerty and maintenance, so it is not generally permitted for litigation in the Hong Kong courts (except for specific cases).

Litigation funding is allowed in some insolvency cases, because debtors often siphon away assets when insolvent, yet liquidators or trustees in bankruptcy often find themselves without sufficient funds to recover assets or pursue other legitimate claims in the name of the debtor.

In light of this, the Hong Kong law has accepted litigation funding arrangements as a legitimate practice in liquidation proceedings. Such arrangements may include the sale and assignment by a liquidator or trustee in bankruptcy, of an action commenced in the bankruptcy, to a purchaser for value.

As far as arbitration is concerned, the Arbitration Ordinance or AO (Cap. 609) has recently been amended, such that the common law tort and offence of champerty and maintenance no longer apply to third party funding of arbitration and mediation.

Under the AO, a Code of Practice sets out the standards with which third party funders are ordinarily expected to comply in connection with arbitration funding. It states the requirements for funding agreements, the minimum amount of capital a third-party funder is required to have, the procedure for addressing conflicts of interest and whether third party funders will be liable to funded parties for adverse costs.

Contributors

Klaus Oblin (KO) Oblin Melichar – Austria www.irglobal.com/advisor/dr-klaus-oblin

Marie-Christine Cimadevilla (MCC) Cimadevilla Avocats – France www.irglobal.com/advisor/marie-christine-cimadevilla

Daniel Jimenez (DJ) SLJ Abogados – Spain www.irglobal.com/advisor/daniel-jimenez

Erwin Shustak (ES) Shustak Reynolds & Partners – US – California www.irglobal.com/advisor/erwin-shustak

Nick Gall (NG) Gall Solicitors – Hong Kong www.irglobal.com/advisor/nick-gall

Dan Engström (DE) Advokatfirman Nova AB – Sweden www.irglobal.com/advisor/dan-engstrom

Florian Wettner (FW) METIS Rechtsanwälte – Germany www.irglobal.com/advisor/florian-wettner

More from IR Global

When Assigning the Right to Pursue Relief, Always Remember to Assign Title to, Or Ownership in, The Claim

• Posted on: Oct 4 2016

Whether a party has standing to bring a lawsuit is often considered through the constitutional lens of justiciability – that is, whether there is a “case or controversy” between the plaintiff and the defendant “within the meaning of Art. III.” Warth v. Seldin, 422 U.S. 490, 498 (1975). To have Article III standing, “the plaintiff [must have] ‘alleged such a personal stake in the outcome of the controversy’ as to warrant [its] invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on [its] behalf.” Id. at 498–99 (quoting Baker v. Carr , 369 U.S. 186, 204 (1962)).

To show a personal stake in the litigation, the plaintiff must establish three things: First, he/she has sustained an “injury in fact” that is both “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife , 504 U.S. 555, 560 (1992) (internal quotation marks omitted). Second, the injury has to be caused in some way by the defendant’s action or omission. Id . Finally, a favorable resolution of the case is “likely” to redress the injury. Id . at 561.

When a person or entity receives an assignment of claims, the question becomes whether he/she can show a personal stake in the outcome of the litigation, i.e. , a case and controversy “of the sort traditionally amenable to, and resolved by, the judicial process.’” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (quoting Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000)).

To assign a claim effectively, the claim’s owner “must manifest an intention to make the assignee the owner of the claim.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc. , 106 F.3d 11, 17 (2d Cir. 1997) (internal quotation marks and brackets omitted). A would-be assignor need not use any particular language to validly assign its claim “so long as the language manifests [the assignor’s] intention to transfer at least title or ownership , i.e., to accomplish ‘a completed transfer of the entire interest of the assignor in the particular subject of assignment.’” Id. (emphasis added) (citations omitted). An assignor’s grant of, for example, “‘the power to commence and prosecute to final consummation or compromise any suits, actions or proceedings,’” id. at 18 (quoting agreements that were the subject of that appeal), may validly create a power of attorney, but that language would not validly assign a claim, because it does “not purport to transfer title or ownership” of one. Id.

On September 15, 2016, the New York Appellate Division, First Department, issued a decision addressing the foregoing principles holding that one of the plaintiffs lacked standing to assert claims because the assignment of the right to pursue remedies did not constitute the assignment of claims.  Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 2016 NY Slip Op. 06051.

BACKGROUND :

Cortlandt involved four related actions in which the plaintiffs – Cortlandt Street Recovery Corp. (“Cortlandt”), an assignee for collection, and Wilmington Trust Co. (“WTC”), an indenture trustee – sought payment of the principal and interest on notes issued in public offerings. Each action alleged that Hellas Telecommunications, S.a.r.l. and its affiliated entities, the issuer and guarantor of the notes, transferred the proceeds of the notes by means of fraudulent conveyances to two private equity firms, Apax Partners, LLP/TPG Capital, L.P. – the other defendants named in the actions.

The defendants moved to dismiss the actions on numerous grounds, including that Cortlandt, as the assignee for collection, lacked standing to pursue the actions. To cure the claimed standing defect, Cortlandt and WTC moved to amend the complaints to add SPQR Capital (Cayman) Ltd. (“SPQR”), the assignor of note interests to Cortlandt, as a plaintiff. The plaintiffs alleged that, inter alia , SPQR entered into an addendum to the assignment with Cortlandt pursuant to which Cortlandt received “all right, title, and interest” in the notes.

The Motion Court granted the motions to dismiss, holding that, among other things, Cortlandt lacked standing to maintain the actions and that, although the standing defect was not jurisdictional and could be cured, the plaintiffs failed to cure the defect in the proposed amended complaint. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 47 Misc. 3d 544 (Sup. Ct., N.Y. Cnty. 2014).

The Motion Court’s Ruling

As an initial matter, the Motion Court cited to the reasoning of the court in Cortlandt Street Recovery Corp. v. Deutsche Bank AG, London Branch , No. 12 Civ. 9351 (JPO), 2013 WL 3762882, 2013 US Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “SDNY Action”), a related action that was dismissed on standing grounds.  The complaint in the SDNY Action, like the complaints before the Motion Court, alleged that Cortlandt was the assignee of the notes with a “right to collect” the principal and interest due on the notes. As evidence of these rights, Cortlandt produced an assignment, similar to the ones in the New York Supreme Court actions, which provided that as the assignee with the right to collect, Cortlandt could collect the principal and interest due on the notes and pursue all remedies with respect thereto. In dismissing the SDNY Action, Judge Oetken found that the complaint did not allege, and the assignment did not provide, that “title to or ownership of the claims has been assigned to Cortlandt.” 2013 WL 3762882, at *2, 2013 US Dist. LEXIS 100741, at *7. The court also found that the grant of a power of attorney (that is, the power to sue on and collect on a claim) was “not the equivalent of an assignment of ownership” of a claim. 2013 WL 3762882 at *1, 2013 US Dist. LEXIS 100741 at *5. Consequently, because the assignment did not transfer title or ownership of the claim to Cortlandt, there was no case or controversy for the court to decide ( i.e. , Cortlandt could not prove that it had an interest in the outcome of the litigation).

The Motion Court “concur[red] with” Judge Oeken’s decision, holding that “the assignments to Cortlandt … were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlandt.”  In so holding, the Motion Court observed that although New York does not have an analogue to Article III, it is nevertheless analogous in its requirement that a plaintiff have a stake in the outcome of the litigation:

New York does not have an analogue to article III. However, the New York standards for standing are analogous, as New York requires “[t]he existence of an injury in fact—an actual legal stake in the matter being adjudicated.”

Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected.

Citations omitted.

Based upon the foregoing, the Motion Court found that Cortlandt lacked standing to pursue the actions.

Cortlandt appealed the dismissal. With regard to the Motion Court’s dismissal of Cortlandt on standing grounds, the First Department affirmed the Motion Court’s ruling, holding:

The [IAS] court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims.

The Takeaway

Cortlandt limits the ability of an assignee to pursue a lawsuit when the assignee has no direct interest in the outcome of the litigation. By requiring an assignee to have legal title to, or an ownership interest in, the claim, the Court made clear that only a valid assignment of a claim will suffice to fulfill the injury-in-fact requirement. Cortlandt also makes clear that a power of attorney permitting another to conduct litigation on behalf of others as their attorney-in-fact is not a valid assignment and does not confer a legal title to the claims it brings. Therefore, as the title of this article warns: when assigning the right to pursue relief, always remember to assign title to, or ownership in, the claim.

Tagged with: Business Law

Assignment of Claim after a Loss: What Homeowners Should Know

Let’s start with the basics. If you, as a homeowner, sustain property damage or losses because of a covered event (like a fire, for example), you will need your home repaired. You choose a contractor or restoration company to do the work – but the check from the insurance company has not come through yet, and you need them to start right away. So, what can you do?

You can sign an “assignment of claim,” which assigns your rights (as the policyholder) to benefits and proceeds from the loss, to the company or contractors. In the simplest of terms, the assignment of claim allows your contractor to get paid directly from the insurance company.

What is the anti-transfer clause in insurance?

However, many contractors and purchasers of the damaged property have found themselves in a tight spot over the years, because of something called the anti-transfer clause. As explained on the Tennessee Insurance Litigation Blog ,  the anti-transfer clause usually reads something like this: “Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.” Sometimes, the insurance company requires written consent before an assignment of claim can be made.

This clause routinely allows insurers to deny payments to contractors – but it shouldn’t, when an assignment of claim is made post-loss.

What’s the difference between pre-loss vs. post-loss assignments?

The Courts of Tennessee have routinely ruled on behalf of contractors and purchasers who were assigned the claim after the loss occurred. That is because the original assignee – the homeowner – was approved by the insurance company in the first place, and because the damage occurred regardless. There was no additional risk for the insurance company. Therefore, even if the contractor has a long and storied history of rule-breaking (or even criminal activity), the homeowner can assign the claim however he or she chooses; after all, the loss already happened.

Where insurance companies can (and do) have a leg up is for pre-loss assignments. The insurance company underwrote the risk on Bob and Jane Homeowner because it felt confident enough to do so. Bob and Jane cannot assign their policy to another person without the approval of the insurer, even when no loss has occurred.

Even if there is an anti-transfer clause in your policy, the chances are very good that a post-loss assignment cannot be legally denied by your insurer. If it is, seek out an experienced insurance dispute lawyer to help you argue the denial.

One last note for Tennessee policyholders

In some cases, the insurance company may decide that the amount of your loss is worth less than the cost of the renovations for which the contractor is charging. If this happens, you could be on the hook for the remainder of the costs, depending, of course, on the language of the deal with your contractor.

Because of this risk, it’s wise to contact an attorney before making any decisions. Get informed about your rights from the start, and let your lawyer address any potential hiccups along the way. If your insurer lowballs your claim, your attorney can  handle the dispute , to ensure that you are compensated fairly.

At McWherter Scott & Bobbitt, we have spent years fighting against unfair insurance claims policies in Tennessee and Mississippi. Let  Brandon McWherter ,  Jonathan Bobbitt  and  Clint Scott   put their knowledge and experience to work for you. Please call  731-664-1340 or fill out our  contact form . We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.

Brandon McWherter has dedicated his practice to assisting insurance policyholders with their claims against insurance companies, including claims for bad faith. He is licensed in Tennessee, Arkansas, and Mississippi. Learn More

An official website of the United States government Here’s how you know keyboard_arrow_down

An official website of the United States government

The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

The site is secure. The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Jump to main content

The Path to a Patent, Part V: Understanding the role of claims in a patent application

​Are you an inventor preparing to file a patent application? In part five of this eight-part recurring series, our experts will discuss the parts of the claim, show examples of claim illustrations from issued U.S. patents, and help participants develop a better appreciation of how a patent examiner views a claim. 

To get the most out of this workshop, you should have an intermediate knowledge of the intellectual property (IP) system and of patents specifically. We recommend that you complete the previous sessions in the series, Part I: IP basics and Part IV: Learn how to draft your patent application , before attending.

Register today

For more information, please email [email protected] or [email protected] . 

Accessibility accommodation

If you are an individual with a disability and would like to request a reasonable accommodation, please submit your request to the contact information listed above.

Additional information about this page