NO NEED TO BE NAMED: FIFTH CIRCUIT ALLOWS PLAINTIFFS TO ADD CLAIMS UNDER FORCE-PLACED POLICY WITHOUT BEING NAMED INSUREDS

Last Monday, the Fifth Circuit held that insured individuals had standing to amend their complaint to add their mortgage lender’s flood insurer as a defendant despite the fact that the individual plaintiffs were not named insureds on the forced-placed flood insurance policy.  In Cotton v. Certain Underwriters at Lloyd’s of London, 2016 WL 4083901, (5th Cir. 2016), Alfred and Rubbie Cotton’s rental properties were damaged when Hurricane Isaac made landfall in the summer of 2012.  The Cottons had purchased windstorm policy, but did not purchase flood insurance.  Instead, their mortgage lender, First American Bank and Trust, obtained a “force-placed” flood insurance policy from Lloyd’s.  After Hurricane Isaac, both the Cottons and First American filed claims under their policies, and both insurers made payments to cover the damage.

In October 2013, the Cottons filed suit against their windstorm insurer, contending that it had not paid enough to cover the wind damage to their rental properties.  Two months later, the Cottons added Lloyd’s as a defendant, seeking additional payments under the force-placed flood policy as well. Lloyd’s then filed a motion to dismiss, arguing that the Cottons did not have standing to enforce the flood policy because they were not parties to the policy.  In response to the motion to dismiss, the Cottons sought leave to amend their complaint to add the named insured on the flood policy, First American, as a plaintiff and the district court allowed the amendment. Subsequently, the Cottons settled their claims against their wind insurer, leaving only First American’s claim against Lloyd’s at issue. Accordingly, Lloyd’s again sought to get First American’s claims dismissed by arguing that since the Cottons did not have standing to enforce the policy, the district court never had jurisdiction to address the Cottons’ motion to file an amended complaint.  The district court denied the motion, and the jury eventually entered an award against Lloyd’s.

On appeal, Lloyd’s again raised the argument that the Cottons lacked standing to bring a claim under the flood insurance policy and the court did not have jurisdiction to rule on their motion to amend as a result.  In analyzing whether the Cottons had standing to bring a claim against Lloyd’s, the Fifth Circuit used the constitutional test for standing.  Namely, the Fifth Circuit concluded that the Cottons merely needed to show that they had been injured, that Lloyd’s caused the injury, and that the relief they request would compensate the injury.  The Court held that the Cottons claim met those requirements because a ruling against Lloyd’s would indirectly compensate them, noting that First American had credited the initial flood insurance payments against the Cottons’ loan balance.  Lastly, the Fifth Circuit addressed the subject matter jurisdiction argument advanced by Lloyd’s.  Even if the it had concluded that the Cottons lacked standing, the Fifth Circuit reasoned that the district court still had jurisdiction to consider their motion to file an amended it answer because the claim against their flood insurer was still pending when amendment was sought.  As a result, the Fifth Circuit affirmed the district court’s decision to grant the Cottons leave to amend their complaint and affirmed the jury’s award against Lloyd’s.