Property Owner May Lack Standing to Enforce a Lender Placed Policy

Forced place insurance has many problems. One is that the homeowner may have no standing to enforce the insurance policy—even if being charged for the premiums.

We noted this in I have a Lender-Placed Insurance Policy; What Happens to My Homeowners Insurance Claim?:

The case Joseph v. Praetorian Insurance Company,1 addresses what occurs when a homeowner who has a force-placed policy files an insurance claim for property damage. In the Joseph case, the homeowner, Betty Joseph (‘Joseph’), discovered damage to her home as the result of two different leaks. She reported the loss to her insurance company, Praetorian Insurance Company (‘Praetorian’), which denied both claims. Joseph sued Praetorian for breach of contract for each of the claims, and the latter moved to dismiss the case, arguing that the policy was a lender-placed policy that listed Bank of America as the named insured and Joseph as a borrower. Thus, Praetorian argued, Joseph did not have standing to bring suit under the policy….

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The district court dismissed Joseph’s complaint, stating that Joseph’s insurable interest in her home did not create standing to sue on her lender-placed insurance policy. The court also stated that the policy unambiguously did not confer standing to sue on Joseph. The court further added that even if Joseph did have standing, she did not have the right to recover from Praetorian under the homeowners’ insurance policy based on the ‘loss payment’ provision.

In a recent Louisiana federal case2 following Hurricane Laura, the court noted the facts and dispute:

This suit arises from damage suffered by plaintiff during Hurricane Laura, which made landfall in Southwest Louisiana on August 27, 2020. At that time plaintiff’s home was insured under a lender-placed policy issued by ASIC…. The only insured named under that policy is plaintiff’s mortgage lender, Wells Fargo, and the policy’s terms require that all benefits be paid to the named insured….

Plaintiff alleges that ASIC failed to timely or adequately compensate him for covered losses suffered in the hurricane. He filed suit against ASIC in this court, raising claims of breach of insurance contract and bad faith…. ASIC now moves for summary judgment on all claims, asserting that plaintiff has no standing to enforce the insurance policy since he is not a named insured or third-party beneficiary.

Like the previous case, the court found the owner of the property being listed merely as the “borrower” gave him no standing to file a lawsuit or make a claim against the forced placed insurer:

Courts in this circuit have had ample opportunity to consider third-party beneficiary status under lender-placed homeowner’s insurance policies. These policies are designed to insure the lender’s collateral whenever the borrower fails to maintain adequate insurance coverage…. Though the borrowers are typically listed on the policy and pay premiums through the lender, such circumstances are insufficient to create third-party beneficiary status unless the borrower is also due some sort of benefit under the policy. Id. Where, however, there is a definite benefit to the homeowner within the policy, he may be a third-party beneficiary. See Lee v. Safeco Ins. Co. of Am., 2008 WL 2622997 (E.D. La. Jul. 2, 2008) (stipulation pour autrui created where lender-placed policy provided that any loss payment exceeding the mortgagee’s interest must be paid to homeowner).

Here the policy clearly identifies plaintiff as ‘borrower,’ but not as a named insured. It does not reflect an intent, let alone a clear one, to benefit plaintiff. Accordingly, plaintiff is neither a named insured nor the recipient of a stipulation pour autrui and his claims arising from the insurance contract are without merit.

When faced with a forced placed insurance, the policy must be read to determine if the borrower has any rights. I have observed that many of these policy forms are increasingly being written so that the borrower receives no benefits under the policy and that the policy contemplates the lender as the sole beneficiary. We noted this a year ago in Who Does Lender-Placed Insurance Protect After a Covered Loss Under?:

Lender-placed insurance policies almost predominately protect just the mortgage lender after a covered loss, not the homeowner….

If your mortgage lender obtains lender-placed insurance, it does not have to obtain coverage to protect the homeowner, so it will typically only protect its own interest in the improvements on the property. So, without a homeowner’s policy of insurance, the lender-placed policy likely will not cover any built-up financial equity a homeowner may have in their home or any insurance to replace personal property after a loss. For these reasons, homeowners cannot rely on lender-placed policies and must maintain a sufficient policy of insurance of their own.

Thought For The Day

A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.
—Robert Frost
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1 Joseph v. Praetorian Ins. Co., No. 17-61237 (S.D. Fla. Feb. 16, 2018).
2 Turner v. American Security Ins. Co., No. 2:21-CV-03773 (W.D. La. Mar. 8, 2022).