Inadequate Underwriting Allows Insurer to be Sued

Evidence Showing Plaintiff as an “Additional Interest” is Sufficient to Establish Standing to Sue in Missouri

Insurance agents, brokers, and insurance company underwriters issue evidences of insurance upon which parties rely. Usually the name the additional interests, additional insureds and mortgagees. Sometimes they do no and that creates a problem for the insurer.

In Penthouse Condominium COA Inc.  v.  Liberty Mutual Fire Insurance Company, a Massachusetts Corporation, No. 18-03353-CV-S-DPR ,United States District Court for the Western District of Missouri Southern Division (June 6, 2019) the insurer claimed the plaintiff was not named on the policy and had no standing to sue the insurer. As a result Liberty moved for dismissal of Plaintiff’s Second Amended Complaint (the “complaint”) for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted.

The Complaint

This case involves a dispute over insurance coverage. On February 29, 2012, a tornado struck the Hilton Branson Convention Center Hotel (the “Hotel”) in Branson, Missouri.  Plaintiff is a condominium owners’ association, whose members are owners of condominium units in the Hotel. The manager of the Hotel, HCW Development Company, L.L.C. (“HCW”), as agent for the owner of the Hotel, Branson Landing Hotel, L.L.C. (“BLH”), obtained an insurance policy (the “policy”) from Defendant.  Plaintiff paid a portion of the premium for the policy on behalf of its members. The policy insured the entire hotel, including condominiums owned by Plaintiff’s members, and included coverage for lost rental income, called “Loss of Business Income.” After being hit by the tornado, the Hotel was closed for over seven months for repairs, during which time the condominium units owned by Plaintiff’s members were not rented.

Upon opening the insurance claim, Defendant informed HCW that Plaintiff “was required to be a loss payee on any settlement check” for damages caused by the tornado. During the claim negotiations, Defendant (contrary to its argument to dismiss) acknowledged that Plaintiff should be a loss payee and that its members were owed a share of the proceeds for their lost rental income. Defendant also included their lost rental income in its calculation of insurance proceeds. Defendant ultimately did not include Plaintiff as a payee on any of the settlement checks, nor did HCW or BLH pay a share of the proceeds to Plaintiff’s members for their lost rental income.

The Motion to Dismiss

Defendant also argued that the complaint fails to state a claim upon which relief may be granted for breach of contract. Furthermore, because any claim for vexatious refusal to pay under the policy is necessarily derivative of the breach of contract claim, Defendant asserts that the second count fails to state a claim as well.

Lack of subject-matter jurisdiction under Rule 12(b)(1)

To establish standing, a plaintiff must show (1) an “injury-in-fact” that (2) is fairly … traceable to the challenged action of the defendant and (3) is likely to be redressed by a favorable decision. An injury-in-fact is an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.

Accepting as true all facts alleged in the complaint, and considering the exhibits attached to the complaint, there are sufficient facts presented in support of Plaintiff’s claim that it is an additional insured or loss payee under the policy. Plaintiff attached to the complaint a document dated May 26, 2011 titled “Evidence of Commercial Property Insurance,” which indicates that “Penthouse COA, Inc” is an “Additional Interest” under the policy. Plaintiff also alleges that throughout the insurance claim process, Defendant acknowledged and affirmed that Plaintiff was a loss payee under the policy and calculated the lost rental income of Plaintiff’s members as part of the insurance proceeds.

The policy was endorsed modifying the policy indicating that there may be an “Additional Named Insured”  and a Schedule of Mortgage Holders all “Per schedule on file with us.”  Based on these two documents, there may be additional schedules and/or certificates in the possession of Defendant and not before the Court, which may name Plaintiff as an additional insured or loss payee, as alleged in the complaint.

Accepting as true all facts alleged in the complaint and considering the exhibits attached to the complaint, there are enough facts presented in support of Plaintiff’s claim that it is either an additional insured or loss payee under the policy. As a result, for purposes of this motion, and for purposes of the motion only, Plaintiff has alleged a legally protected interest and therefore has standing to sue. Accordingly, the motion to dismiss for lack of subject matter jurisdiction was denied.

Plaintiff possesses standing to sue under the policy, and the Court possesses subject matter jurisdiction over the breach of contract claim. Similarly, the complaint adequately sets forth a claim upon which relief can be granted for breach of contract. 

ZALMA OPINION

This is an exercise in futility based upon poor underwriting that did not identify on the policy all of the interests insured. By stating coverage applies only to those “on file with us” and not listing them in the policy allowed the court to assume – for purposes of the motion – that the plaintiff is “on file” with the insurer. Evidence may establish later that it is not and the expense of proving that is due solely to the stupidity of not listing all interests on the policy and refusing to pay after acknowledging a requirement to pay the COA. As Mrs. Gump supposedly said: “Stupid is as stupid does.”


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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