The U.S. District Court for the Southern District of Texas, Houston Division, recently concluded that the property owner lacked standing to assert breach of contract and extra-contractual causes of action against an insurer who provided a forced-placed mortgage protection policy to the bank, even though the owner reimbursed the bank for the premiums and repaid the mortgage loan.  In Premium Plastics v. Seattle Specialty Insurance Services, Inc. and Great American Assurance Company, CA No.H-10-3960 (S.D. Tex. – Houston Div., March 26, 2012), Hurricane Ike caused damage to commercial property owned by Premium Plastics.  After the claim was paid to the mortgage company, Premium Plastics filed suit against the mortgage-protection insurer alleging breach of contract and other, extra-contractual causes of action. The insurer paid additional amounts to the bank who signed the check over to Premium Plastics.  The insurer then moved for summary judgment arguing that Premium Plastics lacks standing to sue because they are neither the insured nor an intended third-party beneficiary.

The property owner, Premium Plastics argued that because it owned the property, reimbursed the bank for the premium payments and paid the mortgage, it was equitably subrogated to any claims the named insured - the bank – would have against the insurer and adjusting company.  The court analyzed the equitable subrogation arguments under Texas law and concluded Premium Plastics had no contract with the  insurer,  was  not  a  named  insured,  additional  insured  or  intended  third-party  beneficiary.   Also, because it was at most a third-party claimant and not an insured, Premium Plastics could not recover on its bad faith or insurance code claims.  Lastly, because Premium Plastics was not a “consumer” as defined in the DTPA, they could not prevail on their DTPA claims.  Accordingly, summary judgment was granted in favor of the insurer and adjusting company.

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