Forcing the placement of insurance may be allowed by mortgage contracts. The way in which the insurance is placed, however, has come under very close scrutiny recently.
In an increasing number of cases, mortgagors are alleging claims associated with the forced placement of insurance by lenders. These claims often include claims based upon alleged breach of the implied covenant of good faith and fair dealing. The implied covenant at issue in these cases is generally if not always the implied covenant of good faith and fair dealing which is implied in all contracts. This is very different from the basis for imposing the duties of Good Faith and Fair Dealing which are at issue in cases of alleged insurer bad faith.
In the cases which present claims resulting from force-placed or lender-placed insurance in the mortgage context, the implied covenant of good faith and fair dealing claims are frequently targeted by lenders with the argument that a Court should not entertain a claim for alleged breach of the implied covenant if there is an express contract between the parties. These defendants argue that the mortgagors' alleged implied covenant claims ought to be subject to the ordinary rule that where there is an express contract between the parties, the rights and duties between them should be governed by their contract.
This argument is not ordinarily found, if ever it is found, in cases of alleged insurance bad faith. There is a good reason for that: Courts imply what they term Insurers' duties of Good Faith and Fair Dealing because the Courts have deemed the Carriers' Insurance Policy Contracts to be legally inadequate to provide redress to injured Policyholders and third parties allegedly harmed by 'Bad Faith' and Unfair Dealing in the Insurance Carriers' handling and negotiating settlement of claims. See generally Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (Third Edition West Publishing Co., 2013 Supplement in process).
To be Continued ....
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