Davis v. American Security Insurance Co

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF LOUISIANA

LAKE CHARLES DIVISION

RAYMOND DAVIS ET AL CASE NO. 2:21-CV-01700

VERSUS JUDGE JAMES D. CAIN, JR.

AMERICAN SECURITY INSURANCE CO MAGISTRATE JUDGE KAY

MEMORANDUM ORDER

Before the Court is a “Motion to Dismiss” (Doc. 5) filed by Defendant American

Security Insurance Company (“American Security”) who moves to dismiss the instant

lawsuit because Plaintiffs are not named insureds on the policy.

BACKGROUND

Plaintiffs allege their property was damaged by Hurricane Laura on August 27,

2020. American Security issued a forced lender-placed policy to insure the dwelling; the

policy names Caliber Home Loans, Inc. “(Caliber”) as the insured. Plaintiffs are not

insured, nor are they additional insureds. Plaintiffs allege that even though American

Security inspected the property early on and knew it was a total loss, it did not tender the

undisputed amounts of covered losses or submit a settlement offer until more than 30 days

after receiving satisfactory proof of loss.1

American Security now brings this motion to dismiss and shows that the policy at

issue is a lender-placed one for the benefit of Davis’s lender, Caliber.

1 Complaint, ¶ 7, Doc. ,.

RULE 12(b)(6) STANDARD

Federal Rule of Civil Procedure 12(b)(6) allows dismissal of a complaint when it

fails to state a claim upon which relief can be granted. The test for determining the

sufficiency of a complaint under Rule 12(b)(6) is that “a complaint should not be dismissed

for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set

of facts in support of his claim which would entitle him to relief.” Hitt v. City of Pasadena,

561 F.2d 606, 608 (5th Cir. 1977) (per curium) citing Conley v. Gibson, 355 U.S. 41, 45-

46, 78 S.Ct. 99, (1957).

Subsumed within the rigorous standard of the Conley test is the requirement that the

plaintiff’s complaint be stated with enough clarity to enable a court or an opposing party

to determine whether a claim is sufficiently alleged. Elliot v. Foufas, 867 F.2d 877, 880

(5th Cir. 1989). The plaintiff’s complaint is to be construed in a light most favorable to

plaintiff, and the allegations contained therein are to be taken as true. Oppenheimer v.

Prudential Securities, Inc., 94 F.3d 189, 194 (5th Cir. 1996). In other words, a motion to

dismiss an action for failure to state a claim “admits the facts alleged in the complaint, but

challenges plaintiff’s rights to relief based upon those facts.” Tel-Phonic Servs., Inc. v. TBS

Int’l, Inc., 975 F.2d 1134, 1137 (5th Cir. 1992).

“In order to avoid dismissal for failure to state a claim, a plaintiff must plead specific

facts, not mere conclusory allegations . . .” Guidry v. Bank of LaPlace, 954 F.2d 278, 281

(5th Cir. 1992). “Legal conclusions masquerading as factual conclusions will not suffice

to prevent a motion to dismiss.” Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir.

1995). “[T]he complaint must contain either direct allegations on every material point

necessary to sustain a recovery . . . or contain allegations from which an inference fairly

may be drawn that evidence on these material points will be introduced at trial.” Campbell

v. City of San Antonio, 43 F.3d 973, 975 (5th Cir. 1995).

Under Rule 8 of the Federal Rules of Civil Procedure, the pleading standard does

not require a complaint to contain “detailed factual allegations,” but it “demands more than

an unadorned, the defendant-unlawfully-harmed-me accusation.” Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955 (2007). A complaint that offers “labels and

conclusions” or “a formulaic recitation of the elements of a cause of action will not do.”

Id. Nor does a complaint suffice if it tenders “naked assertion[s]” devoid of “further factual

enhancement.” Id., at 557, 127 S.Ct. 1955.

To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to “state a claim to relief that is plausible on its face.” Id., at 570, 127

S.Ct. 1955.

LAW AND ANALYSIS

American Security maintains that Plaintiffs do not have standing to enforce the

insurance policy. To have standing to enforce an insurance policy, the plaintiff must be:

(1) a named insured; (2) an additional named insured; or (3) an intended third-party

beneficiary of the policy. Barbe v. Freedom Loan Servicing, LLC,383 F.Supp.3d 634, 641

(E.D. La. 2019) (citing Brown v. Am. Modern Home Ins. Co., 2017 WL 2290268, at *4

(E.D. La. May 25, 2017); Lee v Safeco Ins. Co., of Am., 2008 WL 2622997, at *2 (E.D.

La. July 2, 2008).

Plaintiffs are not a named insured, nor are they an additional named insured. The

issue at hand is whether or not, based on the policy language, they are an intended third-

party beneficiary.

Courts in this circuit have had ample opportunity to consider third-party beneficiary

status under lender-placed homeowner’s insurance policies. These policies are designed to

insure the lender’s collateral whenever the borrower fails to maintain adequate insurance

coverage. Williams, 398 F. App’x at 46. Though the borrowers are typically listed on the

policy and pay premiums through the lender, such circumstances are insufficient to create

third-party beneficiary status unless the borrower is also due some sort of benefit under the

policy. Id. Where, however, there is a definite benefit to the homeowner within the policy,

he may be a third-party beneficiary. See Lee, 2008 WL 2622997 (E.D. La. Jul. 2, 2008)

(stipulation pour autrui created where lender-placed policy provided that any loss payment

exceeding the mortgagee’s interest must be paid to homeowner).

American Security argues that because the Davis’s are not named insureds or

additional insureds, they cannot enforce the policy. American Security also complains that

there is no indication that Plaintiff Mary Davis is a borrower, and the policy identifies

Raymond Davis as the borrower, but also identifies Romanski Davis. American Security

argues that the designation as “Borrower” does not confer any rights to Plaintiffs and the

Plaintiffs are not third-party beneficiaries. The Policy states as follows:

12. Loss Payment.

a. [American security] will initiate loss adjustment of a claim with [Caliber]

* * *

b. [American Security] will make written offer to [Caliber] to settle a claim

within 30 days after receipt of satisfactory proof of loss of that claim.

c. Loss will be made payable to the named insured [Caliber]. No coverage

will be available to any mortgagee other than that shown as the named

insured on the Declarations. The undisputed portion of the loss will be

payable within 30 days after [American Security] receive[s] [Caliber’s] proof

of loss.2

Third-party beneficiaries

American Security maintains that Plaintiffs are not third-party beneficiaries of the

policy. See Joseph v. Hospital Service District No. 2 of the Parish of St. Mary, 939 So.2d

1206, 1212 (La. 10/15/06). A stipulation pour autrui is never presumed; the party claiming

the benefit [Plaintiffs] must show that such a stipulation in their favor exists. To do so, a

plaintiff must show that (1) the contract in question “manifests a clear intention” to confer

a benefit on them, (2) there is certainty as to the benefit owed, and (3) the benefit in question

is not a “mere incident of the contract.” Joseph, 939 So.2d at 1214. In other words, the

contract must confer a specific “direct benefit” in favor of the third party. Joseph, 939

So.2d at 1214 (“Simply stated, in the absence of a direct benefit conferred by the contract,

the doctors cannot be third party beneficiaries. . .”).

Lender-placed policies are designed to insure the lender’s collateral whenever the

borrower fails to maintain adequate insurance. Williams v. Certain Underwriters at Lloyd’s

of London, 398 Fed. Appx. 44 (5th Cir. 2010) (homeowner was not a third party beneficiary

of lender placed policy where all policy benefits were payable to the lender) cf. Lee v.

Safeco Insurance Co. of America, 2008 WL 2622997 (E.D. La. July 2, 2008) (homeowner

2 Defendant’s exhibit A, p. 24.

qualified as a third-party beneficiary where homeowner could potentially recover, as direct

payee, amounts in excess of the lender’s interest) and D’Juve v. Am. Modern Home Ins.

Co., 2015 WL 1650259, at *2 (E.D. La. Ap. 14, 2015) (same as Lee in that the plaintiff

might have qualified as a third-party beneficiary under the policy language; however, the

losses that she claimed did not exceed the lender’s interest). See also, Brown, supra, at *5,

discussion of American Modern policy (same as D’Juve).

American Security relies on the Brown cases in which Judge Lemmon held that

plaintiffs had failed to state a claim against American Security for which relief could be

granted because the policy, that contained the same “Loss Payment” provision as stated

hereinabove, did not mention plaintiffs’ insurable interest or provision for payment to

plaintiffs. Thus, there was no manifest clear intention for the American Security policy to

provide a benefit to plaintiffs that would be sufficient to create a stipulation pour autrui.

In Brown, the court suggested that a plaintiff could be a third-party beneficiary of

an insurance contract when the plaintiff alleges “that the amount of loss exceeds the

mortgage balance.” Brown, 2017 WL 2290268 *5.

Also, in Butler v. American Security Insurance Company, 2019 WL 1714231 (M.D.

La. Apr. 17, 2019), Judge Jackson reached the same conclusion because the American

Security policy only paid losses to the insured—Wells Fargo. See also Farber v. Deutsche

Bank Nat’l Tr. Co., 2020 WL 5820076 (E.D. La. Sept. 30, 2020) (Judge Vitter).

American Security posits that because Plaintiffs lack standing to assert a breach of

contract claim, they cannot assert a bad faith claim under Louisiana law.

Plaintiffs maintain that Raymond Davis is a third-party beneficiary pursuant to a

stipulation pour autrui because the policy clearly confers a benefit on Plaintiffs who own

the home and pay for the insurance through their mortgage payments. Plaintiffs rely on an

endorsement to the policy which defined “your and your” as both the “named insured and

borrower shown in the Declarations.” Plaintiffs argue that by contract, every instance of

“you” in the policy provides rights to Plaintiffs which manifests a clear intent to confer a

benefit on the Plaintiffs. However, this provision does not expressly alter the loss payment

clause’s directive that payment is due to the named insured alone.

American Security argues that Plaintiffs have failed to establish an existing claim

for relief. For example, Plaintiff have not invoked the policy appraisal procedure, nor

stated a plausible breach of contract claim because American Security has paid the policy

limits, albeit allegedly untimely. In other words, because American Security has paid out

the policy limits, Plaintiffs only claim is for penalties and attorneys fees pursuant to

Louisiana Revised Statutes 22:1892 and 1973.3

Next, Plaintiffs argue that because they have an insurable interest as an “borrower”,

this equates to the homeowner being an insured under the policy. The Court disagrees.

The policy identifies the borrower but provides no language that would suggest or

designate the borrower as an insured or additional insured. To be sure, the policy clearly

provides that “all loss will be made payable to the named insured.”4 The Court finds that

the policy does not provide a stipulation pour artrui in favor of Plaintiffs because there is

3 Complaint, ¶ 8.

4 Defendant’s exhibit A, p. 24.

no “direct benefit” for the Plaintiffs. The lender-placed policy purchased by the lender

protects the lender’s interest in the property and Plaintiffs have failed to show that the

policy confers any direct benefit on them.

CONCLUSION

For the reasons stated above, the Motion to Dismiss (Doc. 5)] is hereby

GRANTED.

THUS DONE AND SIGNED in Chambers on this 20th day of September, 2021.

UNITED STATES DISTRICT JUDGE

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