Forced Placed Insurance

August 6, 2011

This will happen to insureds in Grand Prairie, Arlington, Irving, Fort Worth, Dallas, and other places through out Texas. You have a piece of property, such as a home, commercial building, a car, or something else of value. The entity that holds a lien on that piece of property will insist that there be insurance covering that piece of property. If you do not provide coverage, the lien holder will buy "force place insurance." In other words, they will buy coverage for the property in order to protect their own financial interest in the property then they will usually charge back the costs of this insurance to the person who is financing the property.
So the question becomes - What kind of protection does this "forced placed insurance" provide?
The United States District Court, Southern District, McAllen Division, issued an opinion on a case recently that dealt with this issue. The style of the case is, Antonio Trevino v. Evanston Insurance Company, et al. Here is some background and facts.
Trevino filed suit in State District Court alleging that Evanston Insurance Company issued a policy insuring property owned by Trevino and that Trevino sought coverage benefits under the policy. Evanston denied benefits to Trevino. Trevino's property had suffered damage to the roof and water damage. Trevino sued for breach of the insurance contract and violations of sections 541 and 542 of the Texas insurance Code, and The Texas Deceptive Trade Practices Act (DTPA). Evanston removed the case to Federal Court and sought dismissal of the claim, asserting that Trevino had no standing to bring suit under the policy because he was not a beneficiary of the policy.
Evanston had issued the policy, a "Standard Fire Insurance Policy" with a "Mortgage Guard Policy" endorsement, to Carrington, the lien holder, as the only named insured. The policy language reflects and Trevino does not dispute that Carrington is the servicer of Trevino's mortgage and obtained the policy to protect its interest in the event Trevino failed to maintain windstorm coverage on the mortgaged property, which in fact occurred. The policy covered the type of losses incurred. Under the policy "loss shall be adjusted with and made payable to the named insured unless another payee is specifically named."
Trevino concedes he is neither a named insured or additional insured under the policy. Therefore, he recognizes that whether he has standing to bring any of the asserted causes of action turns on whether he is a third-party beneficiary of the contract between Evanston and Carrington. In recent cases dealing with this issue, Texas courts have been looking to Louisiana law as guidance in this area and in that regard, Louisiana law comes down against coverage in these situations.
In making a ruling in favor of Evanston, the court looked at Fifth Circuit cases and concluded that the forced based insurance at issue did not manifest a clear intent to benefit the borrowers, something which is required under Louisiana law.
The court went on to say, "In Texas, much like in Louisiana, 'a presumption exists that parties contracted for themselves unless it clearly appears that they intended a third party to benefit from the contract.'" They cited other cases that held, "Incidental benefits that may flow from a contract to a third party do not confer the right to enforce the contract." Here, the policy language unambiguously manifests the intent to provide hazard coverage to Carrington to the extent of its interest in the property, and any benefit conferred to Trevino as a result, is incidental.
Therefore, Trevino did not have standing to bring the lawsuit against Evanston, and the case was dismissed.
So, anyone who finds themselves in a position where they have "forced placed' insurance needs to know what that policy says before they rely on that policy providing coverage for any loss they may sustain themselves.