Fort Worth insurance attorneys will come across situations where a claim is denied based on the policy having been cancelled for one reason or another. But what if there is a lien holder and the lien holder is not notified of the policy cancellation.
That was the issue in a February 2014, opinion by the United States Court of Appeals for the Fifth Circuit. The style of the case is Molly Properties, Incorporated v. The Cincinnati Insurance Company. Here is the relevant information.
The insurer, The Cincinnati Insurance Company (“Cincinnati Insurance”), issued a policy that covered a commercial property owned by the insured, Molly Properties, Incorporated (“Molly Properties”). After the policy lapsed for nonpayment of premiums, a fire damaged the covered property. Upon the denial of its claim for property damage, Molly Properties sued Cincinnati Insurance for breach of contract. The district court held that the policy was no longer in effect when the fire occurred, and granted summary judgement to the insurer. Molly Properties contended that the district court erred when it found that the policy had been cancelled at the time of the fire because Cincinnati Insurance failed to give notice to the mortgagee on the property before it cancelled the insurance, as required by the policy. This court affirmed that ruling.
Under Texas law, unless the terms of the policy provide otherwise, a policy cancellation is not affected by the failure of the insurer to give a notice of cancellation to the mortgagee. In Standard Fire Ins. Co., a prior case with similarities, the Court held that where an insured property is subject to a mortgage, the Texas Insurance Code “make[s] a new and independent contract between the mortgagee and the insurer.” Here, it is not disputed that Cincinnati Insurance notified Molly Properties that its policy would be cancelled for non-payment of premiums. Further, the terms of the policy did not condition the cancellation of coverage on notification to the mortgagee that the insured’s policy would be cancelled. Thus, whether or not Cincinnati Insurance gave notice to the mortgagee is irrelevant as to the insured’s loss of coverage. Under Standard, Cincinnati Insurance’s failure to notify the mortgagee affects only the mortgagee’s “independent” contract.
Molly Properties attempts to circumvent Standard by characterizing itself as a third-party beneficiary to the agreement between Cincinnati Insurance and the mortgagee. For Molly Properties to qualify as a third-party beneficiary under Texas law, the contracting parties, inter alia, must have intended for Molly Properties to benefit from their promise. This is stated in prior case law, Talman Home Fed. Sav. & Loan Ass’n of Ill. v. Am, Bankers Ins. Further, the intention to confer a benefit to Molly Properties must be “clearly and fully” stated. Here, the promise by the insurer to provide a cancellation notice to the mortgagee was made for the benefit of the mortgagee, not Molly Properties. Thus, Molly Properties cannot recover as a third-party beneficiary.
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