Lender-Placed Policies

Grand Prairie insurance lawyers and those in Fort Worth, Dallas, Carrollton, Garland, Irving, Mesquite, Richardson, and other places in North Texas will get the occasional phone call wanting to discuss a situation involving a lender-placed insurance policy.
The Houston Court of Appeals, 14th District, issued an opinion on May 17, 2012, that discussed this issue. The case had other points that will not be discussed here. The style of the case is, Milton Garcia v. Bank of America Corporation, BAC Home Loan Servicing, LP, and Newport Insurance Company. Here is legal background.
This was a consolidated appeal by Milton Garcia from the trial court’s grant of summary judgments in favor of the defendants. Bank of America (BOA) owned the mortgage on Garcia’s home, BAC was the mortgage servicing company that serviced Garcia’s mortgage, and Newport issued the lender-placed insurance policy to BOA on Garcia’s property. Seeking compensation for damage to his property sustained in Hurricane Ike, Garcia alleged that he was a third-party beneficiary of the insurance policy Newport issued to BOA.
Here is some factual background:
Garcia purchased a home and pursuant to the mortgage agreement, he was required to maintain insurance on the property sufficient to protect the mortgagee’s interest in the property. If he failed to maintain the insurance, the mortgagee was authorized but not required to purchase insurance up to the amount of the loan. This was for the mortgagee’s interest, not Garcia’s interest.
When Garcia failed to keep the required amount of insurance, the mortgagee purchased a “lender-placed” policy from Newport. This policy listed the mortgagee as the only insured party. Garcia alleged that he should be an intended third-party beneficiary of the Newport policy.
In looking at this area of the law, the court pointed out that a third party may recover on a contract made between other parties only if the parties intended to secure some benefit to that third party, and only if the contracting parties entered into the contract directly for the third party’s benefit. The mere fact that a person might receive an incidental benefit from a contract does not give that person a right of action to enforce the contract. The intention to confer a direct benefit to a third party must be clearly and fully spelled out, or enforcement by the third party must be denied.
Newport relied on the insurance policy itself, as well as other documents, to demonstrate that the parties to the policy, Newport and the mortgagee, did not intend to provide any direct benefit to Garcia but merely to protect the mortgagee’s secured interest in the property. Garcia is not listed as a primary or additional insured in the policy. He is listed as the owner of the property, but this identification by itself does not suggest that he was an intended third-party beneficiary Garcia pointed to language in the policy indicating that in the event the covered amount of a covered loss exceeded the value of the mortgagee’s interest in the property, payment for the loss would be made to mortgagee and Garcia. Garcia argued that this language clearly indicated an intention to secure benefit for him and thus he could sue to enforce the policy provisions. But the very same one page endorsement contains language at the bottom explaining that “Notwithstanding the foregoing, nothing contained in this endorsement shall make a Mortgagor in legal possession of the Insured Residential Property or Commercial Property an Insured or an additional insured under this Policy.” This language indicates that contrary to Garcia’s suggestion, there was no intent in endorsement 001 to provide a benefit to Garcia that he would have the right to enforce.
In making its ruling in support of the trial court ruling of granting the summary judgment in favor of Newport, the court said that as a matter of law that Garcia was neither an insured nor an intended third-party beneficiary under the policy.
This writer knows of no recent situation where a home owner has had the authority or power to sue an insurance company on a lender-placed insurance policy. An experienced Insurance Law Attorney would want to look at the policy involved and get a good understanding of the facts surrounding the claim before saying for sure what recourse the homeowner may have. Many times there will be a claim against someone other than the insurance company. This is why a consultation can be very much worth while.