Assignment of Benefits, Work Authorizations, and Claims After Selling Your Home

If you have an open insurance claim and need to sell your home, or if a contractor has asked you to sign a “work authorization,” you are dealing with an assignment of benefits— whether you realize it or not. Assignments are a normal, everyday part of insurance claims, but they are widely misunderstood by homeowners and sometimes even by insurance company adjusters.

This article explains what an assignment of benefits is, how insurance companies already use them constantly through their own preferred vendor programs, and what happens to an insurance claim when a damaged home changes hands.

What Is an Assignment of Benefits?

An assignment of benefits (AOB) is a legal document that transfers some or all of a policyholder’s rights under their insurance policy to a third party. That third party — whether a contractor, a Public Adjuster, or a buyer of the property — can then deal directly with the insurance company and, in many cases, receive payment in their own name.

Assignments are often thought of as unusual or exotic, but they are actually one of the most routine transactions in property insurance. Insurance companies facilitate them every single day through their preferred vendor programs, Public Adjuster contracts, and repair contractor agreements.

Work Authorizations: The Assignment Hiding in Plain Sight

When you file a water damage claim, your insurance company will often dispatch a preferred vendor — companies like Servpro or ServiceMaster — to begin emergency mitigation. When that vendor arrives at your home, one of the first things they do is present you with a document called a “work authorization.”

The name makes it sound like a simple permission slip — a form that lets the contractor enter your home and begin work. And it does serve that purpose. But the real legal significance of the work authorization is that it almost always contains an assignment of benefits. By signing it, you are assigning a portion of your claim to the mitigation company, which allows the contractor to have their name placed on the insurance check for that part of the work.

Who Else Uses Assignments?

Preferred mitigation vendors are not the only parties that hold assignments in insurance claims. Assignments are standard practice across the industry:

• Public Adjusters hold an assignment as part of their contract with the policyholder. This allows them to communicate with the insurer and have their fee reflected in the claims process. Learn more about how this works in our guide to working with a Public Adjuster.
• Repair contractors also commonly hold an assignment that allows them to receive payment directly from the insurer for completed repairs. See our article on choosing your contractor for more on how this relationship works.
• Home buyerscan receive an assignment of the claim when purchasing a damaged property, stepping into the seller’s shoes to pursue the insurance proceeds.

Direction of Payment: A Related but Separate Issue

Work authorization forms often contain a second important provision buried in the fine print: a direction of payment. This is a paragraph where the homeowner agrees to have the insurance payment sent directly — sometimes electronically — to the vendor, bypassing the homeowner entirely.

A direction of payment is not the same thing as an assignment of benefits, although the two are often bundled together in the same document. The assignment gives the vendor the legal right to pursue the claim. The direction of payment tells the insurance company where to send the money.

Why Direct Payment to Vendors Can Be a Problem

Consider this scenario: a mitigation contractor prepares an invoice with 54 line items of work. The direction of payment sends the full amount directly to the vendor. But then you discover that the contractor failed to complete 3 of those items, or scratched your piano while moving equipment. The vendor has already been paid in full, and now you have very little leverage to get the problem fixed.

You are not entirely without recourse. You can contact the insurance company and ask them to intervene. Preferred vendors have a strong incentive not to upset the insurance companies that feed them business. The insurance company’s headquarters actively manages these vendor relationships and can lean on individual franchises to correct problems. But this is a much weaker position than simply holding the money yourself until the work is done right.

Selling a Damaged Home: What Happens to the Insurance Claim?

This is where assignments become critically important. If you sell a damaged property while an insurance claim is still open, the buyer generally has no right to pursue that claim unless the seller formally assigns it. The insurance policy is a contract between the insurer and the original policyholder. The buyer was never a party to that contract and has no standing to make a claim under it.

But the seller can assign the claim to the buyer. And in California, this right is protected by law.

California Insurance Code § 520

California Insurance Code § 520 states: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.” In plain English, this means that once a loss has occurred, any clause in an insurance policy that tries to prevent the policyholder from assigning their claim is unenforceable.

The California Supreme Court reinforced this principle in Fluor Corp. v. Superior Court, 61 Cal.4th 1175 (2015), holding that Insurance Code § 520 bars an insurer from refusing to honor an insured’s post-loss assignment of policy rights, even when the policy contains an anti-assignment clause. The court overruled prior case law that had been used to restrict such assignments.

Is It Legal and Ethical to Buy a Damaged Home and Pursue the Claim?

Yes. Someone could buy a totally damaged house — even one that has burned to the ground — and have the insurance claim assigned as part of the sale. This is perfectly legal and perfectly ethical. The buyer is simply stepping into the shoes of the original policyholder and pursuing proceeds that are owed under the policy.

There are many good reasons why a homeowner might sell a damaged property instead of rebuilding:

• An elderly homeowner who cannot physically manage a complex construction project
• A family in desperate need of immediate cash who cannot afford to wait months or years for the claim to be resolved
• A homeowner who has already relocated and does not want to return
• A policyholder who is overwhelmed by the claims process and simply wants to move on

Why Insurance Companies Sometimes Resist

Despite the fact that assignments are legal and common, insurance companies sometimes become confused or resistant when a new party appears on the claim after a home sale. The adjuster may not be comfortable placing another party’s name on the check. The company may question the legitimacy of the transaction or create unnecessary hurdles.

This resistance is ironic. The same insurance company that routinely processes assignments from its preferred water mitigation vendors — placing Servpro’s name on thousands of checks every year — may suddenly act as though it has never heard of an assignment when a home buyer presents one. The mechanism is identical. The legal framework is the same. The only difference is that the company is less familiar with assignments in the home-sale context.

Making a Home Sale Assignment Work Smoothly

Even though a post-loss assignment is legally valid without the insurer’s consent, there are practical steps that can make the process go more smoothly and reduce friction with the insurance company.

1. Use an escrow account. The buyer and seller can set up an escrow arrangement for the insurance proceeds. This adds a layer of structure and professionalism that can help the insurance company feel more comfortable with the transaction.
2. Negotiate seller cooperation.Even after the assignment, the seller’s cooperation can be valuable. They were the original policyholder and may need to participate in certain aspects of the claim, such as providing loss history or signing documents. Build this cooperation into the purchase agreement.
3. Be transparent with the insurer.Consider approaching the insurance company proactively to explain exactly what is happening and why. A clear, honest explanation of the transaction — rather than simply surprising the adjuster with a new name — can prevent the company from creating unnecessary problems.
4. Get attorney advice. An attorney experienced in insurance claims can help structure the assignment properly, advise on whether and how to approach the insurance company, and intervene if the insurer resists honoring a valid assignment.

Key Takeaways

• An assignment of benefits transfers part or all of a policyholder’s insurance claim rights to a third party. This is a routine, legal, and widely used mechanism.
• Work authorization forms from preferred vendors like Servpro and ServiceMaster typically contain an assignment of benefits. Insurance companies know about these and process them daily.
• A direction of payment is a separate provision that tells the insurer to pay the vendor directly. This can reduce your leverage if there are problems with the work.
• When selling a damaged home, the buyer has no right to pursue the claim unless the seller assigns it. The seller can — and often should — include an assignment as part of the sale.
• In California, Insurance Code § 520 makes post-loss anti-assignment clauses unenforceable. The insurer must honor the assignment.
• Escrow arrangements, seller cooperation, and attorney guidance can help make the process smoother when an insurance company is unfamiliar with home-sale assignments.