The insurmountable bar of "third-party beneficiary" status in homeowners' actions against force-placed insurance carriers, is obvious now if ever it was in doubt. These are lawsuits filed by homeowners who are forced to pay insurance premiums without a corresponding legally recognized right to receive benefits under the policy when there is a loss.
In Zabala v. Integon Nat'l Ins. Co., No. 20-22221-Civ-Scola, 2020 WL 3977380 (S.D. Fla. July 14, 2020), the Court dismissed such a homeowner's complaint with prejudice because the lender and the carrier did not intend to benefit the homeowner when the lender ordered a force-placed insurance policy from the carrier, even though they charged the homeowner for the premiums.
(Parenthetically, Westlaw released the Zabala decision in the middle of September, 2023.)
The Court said that its decision derived in the first place from Florida law, which requires an intent of contracting parties to benefit the party claiming the right to sue as an intended or third-party beneficiary. Zabala, 2020 WL 3977380, at *2. This represents the general trend of the federal case law to deny homeowners who are forced to pay insurance premiums the right to sue when the insurance is denied, as was the case for example in Zabala. See the article posted here on December 7, 2022, for example, WHEN DEFENDANTS, NOT JUDGES, SAY WHO CAN SUE.
In Zabala, as in most of these cases, the judge wrote that the Court's decision was based on the law, although the force-placed insurance policy also declared that the homeowner was not an intended beneficiary. Zabala, 2020 WL 3977380, at *3.
The reality is, however, that a lender and an insurance carrier can force a homeowner to pay premiums for an insurance policy that benefits only the lender simply by declaring that they do not intend to benefit the party paying the premiums.
The Zabala Court made this clear when it expressly rejected the homeowner's argument "that he has standing to pursue this action as a third-party beneficiary to protect his own interest as a homeowner for the insured property." Zabala, 2020 WL 3977380, at *4. This Southern District of Florida Court then went on to reject reliance on contrary Middle District of Florida case law as "misplaced." Moreover, the Middle District cases in question "did not involved policies" like the one at bar, the Zabala Court said. Zabala, 2020 WL 3977380, at *4.
That is certainly one view of the situation, and the result in Zabala exemplifies it. A different view is available, however, which Zabala and its predecessors and progeny have left uncited and untouched.
The different view is the flip-side of the situation exemplified in Zabala where the homeowner sued only the carrier and not the lender. The difference involves, rather, suing the lender, not the insurance carrier.
When the lender's alleged failure to include the homeowner on the force-placed insurance policy is alleged as a breach of the lender's fiduciary duty, the homeowner-mortgagor's claims have been allowed:
Instead, the mortgagors alleged that the lender force-placed insurance (LFPI) was objectionable on the basis of two allegations: (1) they were forced to pay excessive premiums under the LFPI policy and (2) the lender failed to include them on the policy. On these two allegations, they claimed that the lender acted in bad faith and breached fiduciary obligations under Florida law as a result.
The case is Meyer v. Bank of Am., N.A., No. 3:21-cv-1088-HES-JRK, 2022 WL 18492520 (M.D. Fla. Aug. 18, 2022). This decision and its implications were addressed in an article posted here on February 1, 2023, EXCESSIVE PREMIUMS & NOT INCLUDING MORTGAGORS ON LFPI POLICY: CLAIMS ALLOWED.
The lesson from the case law is clear, it seems: Before any lawsuit is filed by or on behalf of a homeowner forced to pay insurance premiums in such situations, look at the lender, rather than at the carrier; look at the mortgage contract rather than the force-placed insurance contract.
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