In James v. American Sec. Ins. Co. [ASIC], No. 21-1861, 2021 WL 5795292 (E.D. La. December 7, 2021), another force-placed insurance policy written by a force-placed insurance company barred a homeowner from suing the carrier that wrote the policy, this time for bad faith. Ironically, perhaps, the Court's opinion was released on Pearl Harbor Day.
As should be expected, the carrier did not write the policy for the homeowner or include the homeowner as a named additional insured. The force-placed policy was paid for by the homeowner, of course, but the policy was written for the lender who force-placed it on the homeowner.
Under Louisiana law, that left the homeowner with one option to have standing to sue the force-placed insurance carrier: Be an intended third-party beneficiary.
Here, the homeowner paid the premium and owned the property that suffered the insured loss. The carrier did not contest that the loss was insured.
But the carrier did contend that the contract it wrote did not show on its face that the homeowner was a third-party beneficiary. In Louisiana, as in many jurisdictions in the United States, the contract must show on its face that the party suing on the contract is a third-party beneficiary or that party cannot sue on the contract, regardless of the reality of the case and regardless of the actual facts. James, 2021 WL 5795292, at *2.
This decision illustrates the fatal flaw not so much in force-placed insurance practices, as in third-party beneficiary law. If judges ignore the reality of a situation when they determine whether the contract itself furnishes a basis for a party to sue a force-placed insurance carrier that wrote the contract in question, they really are deciding the case strictly on whether the party is a named insured or a named additional insured in the written contract of insurance. They are not then deciding the case on any other basis, regardless of what they may say.
The federal judge dismissed the homeowner's bad-faith complaint against the carrier with prejudice because, said the Court, it was not "plausible" that the homeowner could have standing to sue for the force-placed carrier's alleged bad faith in this case. James, 2021 WL 5795292, at *3.
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