A husband and wife purchased a home in which the mortgage holder carried the property insurance policy in the name of the mortgage company. At some point, the couple’s home was damaged by a water leak resulting in significant flooding to their home. The homeowners submitted a claim to the insurance company requesting payment for the damages. When the insurance company failed to timely pay the damages and restoration costs, the homeowners filed suit in Federal court for bad faith and breach of contract alleging: (1) the insurer failed to properly adjust the claim, and (2) failed to timely pay for emergency remediation services and restoration expenses.

The insurance company filed a motion to dismiss for failure to state a claim upon which relief can be granted arguing that since the Plaintiffs were not the named insured or beneficiaries under the insurance policy and had no legal basis to file the lawsuit or recover under the insurance policy.

The Federal court granted the motion to dismiss agreeing with the insurer and dismissed the lawsuit. The court said that the insurance policy clearly existed between the mortgage holder and the insurance company to protect the lender’s interest in the property and that the lender was clearly the primary beneficiary of the insurance policy. Finally, the court noted that the policy is unambiguous that the Plaintiffs are not parties to the insurance policy and have no coverage for their property. Lumpkins v. Balboa Ins. Co., 812 F.Supp.2d 1280 (Okla. 2011).

Forced placed insurance is typically purchased by a lender to protect its interest when the homeowner who borrowed the money fails to carry insurance. These contracts have terms that differ from traditional homeowners’ coverage.