Force Placed Insurance Policies

Force Placed Insurance Policies are unique.  The biggest thing to know about these policies is that their purpose is to protect the lender, not the homeowner.  This is illustrated in a 2023 opinion from the Southern District of Texas, Houston Division.  The opinion is styled, Peter Garcia v. Great American Assurance Company.

Peter Garcia (“Plaintiff”) filed this action against Great American Assurance Company (“Defendant”) alleging that Defendant failed to pay for covered damage to his home under an insurance policy purchased by his mortgagee, Carrington Mortgage Services LLC (“Carrington”).  Pending before the court is Defendant’s Motion for Summary Judgment.  The Court granted the motion.

Plaintiff’s home is mortgaged in favor of Carrington.  Lenders often require borrower-mortgagors to purchase insurance on their home.  When the borrower does not do so, the lender might purchase a “force-placed” policy and include the cost in the borrower’s mortgage payments.  Carrington purchased a force-placed insurance policy (“the Policy”) covering its interest in Plaintiff’s home.  Plaintiff is not a party to the Policy, and all payment for loss is
to be made to Carrington.

The home was damaged in February of 2021 by a winter freeze.   A claim was submitted under the Policy.   Defendant paid for some damages, but Plaintiff believed that the amount was not adequate.  Plaintiff filed suit against Defendant.

Plaintiff alleges that Defendant breached the Policy by failing to pay for covered damages.  Although Plaintiff is not a party to the Policy, the parties dispute whether he is a third-party beneficiary.  To recover for a breach of contract, a plaintiff must be a party to the contract or qualify as a third-party beneficiary.

A person’s status as a third-party beneficiary depends solely on the contracting parties’ intent.  Courts begin with the presumption that the parties contracted solely for themselves.  When the contract confers only an indirect, incidental benefit, a third party cannot enforce the contract.  To make a person a third-party beneficiary, a contract must include a clear and unequivocal expression of the contracting parties’ intent to directly benefit a third party.

Courts have read some force-placed insurance contracts as making the homeowner a third-party beneficiary, but results have depended on the contract language.

Plaintiff does not cite any Policy term that indicates an intent to benefit him.  In fact the Policy contains terms that negate such an intent.  The first page of the Policy states:

Unless indicated otherwise by endorsement, this policy
does not provide coverage for the interest or
equity of the mortgagor. This is creditor placed
insurance, protecting your mortgagee interest . . .

Carrington is the Named Insured, and the Policy states that the mortgagor is not a Named Insured under this policy.

Plaintiff argues that he is a third-party beneficiary because he lives in the home and pays the policy premiums.   Plaintiff cites no authority that these factors support third-party beneficiary status.  The court concludes that they do not, because they do not indicate anything about the contracting parties’ intent.

Plaintiff has cited no evidence to support third-party beneficiary status, and the Policy expressly disclaims any intent to protect his interest.  His breach of contract claim therefore
fails as a matter of law.

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