HOUSTON COURT OF APPEALS HOLDS INSURER FAILED TO CONCLUSIVELY NEGATE BORROWER’S STATUS AS A THIRD-PARTY BENEFICIARY UNDER “FORCE-PLACED” INSURANCE POLICY

Newsbrief

The Houston 1st Court of Appeals recently held an insurer moving for summary judgment failed to carry its burden of conclusively negating a borrower’s status as a third-party beneficiary under an insurance policy.  Alvarado v. Lexington Ins. Co.,  --- S.W.3d ---- (Tex. App. –Houston [1st Dist.] April 19, 2012).

The appellant, Javier Alvarado, sued Lexington Insurance Company (“Lexington”) for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code and the Deceptive Trade Practices Act (“DTPA”) after Lexington rejected Alvarado’s claim for property damage following Hurricane Ike. The trial court rendered summary judgment in favor of Lexington. On appeal, Alvarado contended the trial court erred in rendering summary judgment because Lexington did not conclusively negate Alvarado’s status as a third-party beneficiary under the “force-placed” insurance policy issued by Lexington to Alvarado’s mortgage lender.  The court of appeals agreed and reversed the trial court’s decision.

The appellate court noted that Lexington itself raised the issue of Alvarado’s third-party-beneficiary status by arguing in its summary judgment motion that Alvarado did not qualify as a third-party beneficiary to the Policy and therefore lacked standing.  Alvarado responded to the issue in his summary judgment response.  Because it was Lexington’s burden, as movant for summary judgment, to prove its entitlement to summary judgment against Alvarado as a matter of law, the appellate court held Lexington failed to carry its burden of conclusively negating Alvarado’s status as a third-party beneficiary to the Policy and reversed the trial court’s decision.

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