FEDERAL COURT DISMISSES HOMEOWNER’S CLAIMS IN COVERAGE DISPUTE INVOLVING FORCED-PLACED INSURANCE POLICY

A federal court in Houston recently granted an insurer’s motion for summary judgment and dismissed claims by a homeowner that arose from a dispute over whether the insurer underpaid a claim made by the homeowner’s lender under a “forced-placed” insurance policy. Peter Garcia v. Great American Assurance Co., Civil Action No. H-23-0090, 2023 WL 3262061 (S.D. Tex.—Houston May 4, 2023).

When the homeowner purchased his property, he did not purchase homeowner’s insurance, so his lender purchased a “force-placed” policy for the property covering its interest as mortgagee and passed the cost of the policy to the homeowner through the mortgage payments. The homeowner was not a party to the policy and all payments for loss were to be made to the lender.

After the 2021 winter storm hit Texas, the property was damaged. The lender submitted a claim under the policy, and the insurer paid some damages. The homeowner did not believe the amount paid by the insurer was adequate, so he filed suit against the insurer and alleged breach of contract, bad faith, violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act, fraud, and civil conspiracy. The insurer then removed the case to federal court and filed a motion for summary judgment, arguing that the homeowner was not a party to the policy and not a “third-party beneficiary,” so the homeowner could not recover under any of the theories of liability he alleged.

The Court reviewed the language of the policy and found that it did not provide coverage for the interest or equity of the [homeowner] and that the homeowner was not a named insured under the policy. Although the homeowner argued that he was a third-party beneficiary because he lived in the home and paid the premiums, the Court concluded that neither of those factors, standing alone, supporting a finding of third-party beneficiary status because they do not indicate anything about the contracting parties’ (i.e., the lender’s and the insurer’s) intent to confer any such status on the homeowner. Consequently, the Court ruled that the homeowner’s breach of contract claim failed as a matter of law.

In turn, the Court summarily dismissed the homeowner’s bad faith claim (because the homeowner provided no evidence that the insurer owed a duty of good faith and fair dealing to someone who was not a party to the policy or a third-party beneficiary), as well as the homeowner’s claims for violations of the Texas Insurance Code (because the Code requires a plaintiff to be either a named insured or a third-party beneficiary) and the Texas Deceptive Trade Practices Act (because the homeowner was not a “consumer” under the Act due to not being the party who sought and acquired the insurer’s services). The Court also dismissed the homeowner’s claims for fraud and civil conspiracy because he failed to cite any evidence to support his claims and instead relied on conclusory statements. As a result, the Court granted the insurer’s motion for summary judgment and dismissed all of the homeowner’s claims against it.