This story is reprinted with permission from the Insurance Coverage Law Center, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

The U.S. District Court for the District of New Jersey has dismissed a homeowner’s claims against his mortgage servicers and the insurers that issued lender-placed insurance policies on his property.

The Case

The mortgage on Luigi Francese’s New Jersey home required that he maintain insurance on the property “in the amounts . . . for the periods that Lender requires.” The mortgage also provided that if he failed to maintain adequate, continuous insurance, then:

Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense. . . . [S]uch coverage shall cover Lender, but might or might not protect Borrower, Borrower’s equity in the Property, or the contents of the Property, . . . and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the [Lender] insurance coverage so obtained might significantly exceed the cost of the insurance that Borrower could have obtained.

Mr. Francese subsequently sued his mortgage loan servicers and insurers in a putative class action, alleging that they charged borrowers for “kickbacks” when buying force-placed or lender-placed hazard insurance policies (“LPIs”); that several of the defendants together undervalued losses on LPI-covered properties; and that, when his property suffered damage, the insurance proceeds had been misappropriated.

The defendants moved to dismiss.

The Court’s Decision

The court granted the defendants’ motion.

In its decision, the court first ruled that the “filed rate doctrine” – under which any filed rate approved by state insurance regulators was “per se reasonable and unassailable in judicial proceedings brought by ratepayers” – barred the kickback claims.

With respect to Mr. Francese’s insurance benefits claims, the court ruled that he failed to “plausibly plead” how he could recover the insurance proceeds when the loan servicer was the named insured under the LPI policies. The insurer paid the loan servicer after Mr. Francese’s home was damaged because that was “what the insurance contract required.”

The LPI policies, the court pointed out, contained “unambiguous terms” showing that the contracting parties had no intention to make Mr. Francese a beneficiary.

The court concluded that, in all, the parties conducted a regular business transaction authorized under both the mortgage’s terms and LPI policies, and Mr. Francese had no right to recover the insurance proceeds arising under the LPI policies.

The case is Francese v. American Modern Ins. Group, Inc., No. 2:17-2246 (D.N.J. April 16, 2019). Attorneys involved include: For LUIGI FRANCESE, Plaintiff: FREDERIC AURELIEN, LEAD ATTORNEY, THE LAW OFFICES OF FREDERIC AURELIEN, HACKETTSTOWN, NJ. For AMERICAN MODERN HOME INSURANCE COMPANY, AMERICAN MODERN INSURANCE GROUP, INC., Defendants: JEFFREY MATTHEW BRENNER, LEAD ATTORNEY, POST & SCHELL PC, PHILADELPHIA, PA. For SPECIALIZED LOAN SERVICING LLC, Defendant: JONATHAN E. SAMON, LEAD ATTORNEY, MCGLINCHEY STAFFORD, NEW YORK, NY. For RESIDENTIAL CREDIT SOLUTIONS, INC., Defendant: JOY HARMON SPERLING, LEAD ATTORNEY, DAY PITNEY LLP, Parsippany, NJ.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.