Insured Can’t Change Policy Limit to Cover Loss

Policy Limit is Most an Insurer Need Pay

When a lender purchases insurance to protect its interests it only buys a limit sufficient to cover its outstanding loan. The lender does not purchase insurance to protect the borrower who has failed to fulfill the obligation to insure the property for the benefit of the borrower and the lender. When a loss occurs the lender is protected and often the borrower is unhappy. Because no one likes insurance companies who apply the terms and conditions of a policy if they do not fully indemnify the insured litigation gets filed.

In Michael Jerome Brown, Individually and as Administrator of the Estate of Laura Lee Brown v. American Bankers Insurance Company of Florida, CAUSE NO. 3:18-CV-413-CWR-FKB, United States District Court for the Southern District of Mississippi Northern Division (May 17, 2019) was faced with a claim from a borrower to collect more than the policy limit.

FACTUAL BACKGROUND

On May 12, 2017, a storm caused a tree to fall onto a mobile home in Yazoo City, Mississippi. At the time of the storm, a lender-placed insurance policy issued by Defendant covered the mobile home. The policy listed the insured lender as Ditech Financial, LLC and the borrower as Laura Brown. Defendant retained Crawford & Company to inspect and assess the damage to the mobile home. Crawford determined the cost to repair the damage to be $22,634.66, which exceeded the policy limit of $13,430. Consequently, Defendant issued a check in the amount of $13,430 to the insured lender, Ditech, and to Michael Brown, as the administrator of the estate of Laura Brown.

Plaintiff contends that Defendant misrepresented the policy limits or, in the alternative, committed fraud because Defendant charged an additional fee that did not provide a benefit to the borrower. Based on these allegations, Plaintiff sued the insurer alleging misrepresentation, negligence, breach of contract, bad faith refusal to pay insurance benefits, fraud, and infliction of emotional distress.

DISCUSSION

Plaintiff, inexplicably, contends that this policy is inapplicable and, rather, a policy issued two months after the storm with a policy limit of $33,956 is the relevant policy. By representing to Crawford a policy limit of only $13,430, and refusing to pay additional amounts, Plaintiff argues this constituted misrepresentation, negligence, breach of contract, and bad faith refusal to pay.

Plaintiff provides no authority or explanation for why the Court should consider a policy issued two months after the storm damage occurred as the applicable policy in this case. The court concluded that the defendant complied with the appropriate insurance policy when it paid the policy limit.

In the alternative, Plaintiff argued that if the policy limit is $13,430, then Defendant committed fraud by “charging a fee which provides no benefit” to the borrower. Plaintiff contends that the policy’s “Borrower’s Property Coverage” endorsement, which charged a $95 fee, entitles him to additional payments beyond the policy limit reflected in the Declarations. Defendant explains, and the text of the policy shows, that this “Borrower’s Property Coverage” endorsement amended the term “property” to extend coverage to mobile (or “manufactured”) homes, as opposed to just personal property, in return for a $95 premium. Furthermore, the “Limit of Liability” provision in the endorsement expressly provides that Defendant’s liability for loss or damage to the property will be, at most, the limit of liability reflected in the Declarations.

Plaintiff, grasping at straws, contended in the alternative that the “Borrower’s Property Coverage” endorsement is ambiguous and misleading because (1) there is a separate “Basic Premium” fee of $501, and (2) the endorsement is labeled as “Borrower’s Property Coverage” instead of “Mobile Home Fee.” Specifically, he asserts that no one would expect that a fee captioned “BORROWER’S PROPERTY” was some clever insurance code for “mobile home.”  To charge a fee, under a misleading heading, for which the borrower receives no benefit, is misleading and possibly fraudulent. This, the plaintiff claimed, is a dispute of a material fact.

The policy, which Plaintiff is presumed to have read in full as a matter of law, sets forth the purpose and scope of the “Borrower’s Property Coverage” endorsement. The “Basic Premium” fee is the premium associated with the coverage of personal property. The “Borrower’s Property Coverage” endorsement, which charges an additional $95, modifies the policy so that manufactured homes (like Plaintiff’s home) are covered under the policy.

Since the interpretation of clear and unambiguous contracts is a matter of law, not fact. The policy is not ambiguous nor is it misleading.

There are no facts alleged that indicate fraud. The endorsement permits broader coverage, not a heightened policy limit.

The insurer had no obligation to pay extra sums over its maximum policy limit. As such, all of Plaintiff’s claims were dismissed.

ZALMA OPINION

Why this case was filed is amazing to me. The insurer, by the facts agreed to by both sides, paid exactly what it promised to pay in the event of a loss to the mobile home if it was equal to or greater than the limit of liability stated in the policy. The plaintiff, who failed to buy his own insurance until after the tree fell has no one to blame for the less than complete indemnity but himself.


© 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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