Homeowners Rights Under a Lender-Placed Insurance Policy?
A federal court recently ruled that a Florida homeowner did not have standing (the legal right) to sue an insurance company that allegedly breached an insurance policy covering the home. The whole point of the case was that Bank of America, and not the homeowner, was the named insured on the lender-placed insurance policy.
What Is Lender-Placed Insurance?
Lender-placed insurance, which is also called “creditor-placed” or “force-placed” insurance, “is coverage that a mortgage lender or bank purchases for property it owns to protect its interests when the homeowner fails to purchase this coverage,” according to the Florida Office of Insurance Regulation.
Most mortgages require borrowers to purchase homeowner’s insurance. If they don’t maintain the requisite coverage, then the lender may purchase insurance and “force-place” it on the home (depending on the terms of the mortgage). In that case, the named insured becomes the lender instead of the homeowner.
However, the homeowner does have an opportunity to purchase a replacement policy if a policy is canceled for whatever reason. It’s only if the homeowner fails to remedy that lapse in coverage (or doesn’t purchase coverage in the first place) that the lender would force-place coverage.
The Federal Lawsuit
In 2014 a woman discovered damage in her home caused by a kitchen leak and a bathroom leak. She reported that damage to Praetorian Insurance Company, but the company denied both of her claims. She sued for breach of contract.
Praetorian argued that the woman didn’t have standing to sue because Bank of America was the named insured on the lender-placed insurance policy. Only Bank of America, the company argued, had the right to sue under the terms of the policy.
Under Florida law, “no contract of insurance of property or of any interest in the property or arising from the property shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured as at the time of the loss.”
An “insurable interest” is “any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment.” One of the questions, in this case, was whether the homeowner’s “insurable interest” in her home gave her standing to sue.
The court said no. Based on the terms of Bank of America’s lender-placed insurance policy, only the bank could sue for breach of contract. The homeowner’s “insurable interest” did not give her standing to sue under the terms of someone else’s insurance policy. And even if she did have standing, the court said that she would not be able to recover directly from Praetorian.
Homeowners have multiple option lender-places to resolving disputes with their insurance providers. If you have a lender-placed policy and had your claim underpaid or denied, Contact the Florida attorneys at the Insurance Litigation Group. They will examine the terms of your policy and determine your rights and your options under that policy. Contact us today for a free consultation regarding a dispute under your policy.